This chapter looks at the conditions that paved the way for the rise of political Islam and the forces driving the quest for an Islamic state. The cultural, social and economic changes caused by the growth of international trade, the rapid transfer of investment capital and the development of high-speed global communications. The modern concept of the Islamic state was developed by Muhammad Rashid Rida in response to the dissolution of the Caliphate, the increasing influence of the Western colonial Powers on Muslim societies and the emerging Zionist movement. State responses to the Islamist challenge can broadly be divided into two categories: co-optation and suppression. The model of Islamic state in Afghanistan under the Taliban could not be more different from that prevailing in Iran. Transnational Islam, however, has not just been restricted to organizations but has also been a driving force in the foreign policy of certain Muslim states, notably Saudi Arabia and Iran.