The breakdown of order and the collapse of state institutions in fragile and failed states creates situations that may pose direct security threats for foreign actors. Whether and to what degree NATO should lead international efforts to address the dangers posed by failed states, typically far out-of-area, is a major debate for alliance purpose and strategy. While the alliance has focused its energy on aspects of the problem like counterterrorism and piracy, most action on fragile and failed states has been ad hoc, mainly military interventions and post-conflict reconstruction. The problem of dysfunctional states requires a broader rethinking for the international community and especially for NATO as it revaluates strategic goals. To more effectively provide security within the territorial boundaries of its member states the alliance needs to look at security beyond the Euro-Atlantic area. Shaping the political environment means an expanded NATO role in conflict prevention and in avoiding state failure before it occurs. It is argued here that this strategic perspective will not mean more interventions for NATO, but fewer. Moving away from intervening to stress prevention of state failure involves a change of focus: the development of capacities to anticipate problems and rebuild states, and to strengthen institutional capacities in states of strategic importance to the alliance.