State reform and conflict are closely interrelated. While state reform can on the one hand be seen as a prerequisite for conflict transformation and sustainable peace, it can also easily become a source of conflict. The potential of state reform itself depends on the proper establishment of structures, values and attitudes that can enable the different groups within the society to handle their conflicts peacefully. State reform must in any case encompass more than just a reorganisation of the administrative system or of the way in which resources are allocated. Rather, it must set the stage for the establishment of participatory and legitimised nation-building processes. By forging democratic development, the participation of the population and rule of law, it will also develop structures that can offer an effective means for the peaceful management of deep-rooted conflicts. As democracy takes root, it will itself have a pacifying effect since it is based on values such as pluralism, tolerance, inclusiveness and compromise, and because it helps to establish norms of behaviour such as negotiation, compromise and cooperation among the political actors. Nevertheless, state reform can also have negative consequences. In situations of externally induced rapid change, it can well become a source of acute conflict, and provoke violent reactions on the part of the ruling regime. Poorly designed state reform can even lead to the deterioration of a conflict. In the case of Angola, for example, the resurgence of war after the peace accord of Bicesse was an unfortunate consequence of the prior establishment of a winner-takes-all system. State reform must therefore be seen as a ‚tightrope walk‘, always seeking a fine line between conflict mitigation and crisis escalation.This chapter will focus on the potential of state reform to prevent, to mitigate and to heal the effects of violent intrastate conflicts. Section II offers an overview of actual challenges in crisis regions, and describes some of the ways in which state reform can deal with these problems. In the following sections, these strategies will be discussed in more detail: section III addresses the possibilities of strengthening participatory processes; section IV deals with institutional reforms; and section V focuses on security sector reform. The article concludes with some open questions which deserve much more attention in the near future (section VI).