The following dissertation develops a theoretical framework for guiding the strategy of democratic states in successfully countering the hostilities of nationalistic substate terrorist organizations (NSTOs), and effectively manipulating the terrorist group’s (and its supporting elements’) decision-making calculus. In particular, the theory of strategic coercion has been chosen as a basis for formulating this framework, based upon: 1) the invaluable guidance it offers in dynamically drawing upon all instruments of national power—economic, diplomatic, military, etc.—to accomplish politico-strategic objectives; and 2) the unique insights it provides into making strategic moves aimed at influencing the choices taken by an adversary. However, strategic coercion theory as it currently stands is inadequate for applications against substate terrorist organizations. As a quintessential cornerstone for prescriptive policy in strategic studies, such a looming deficiency vis-à-vis one the most important security threats of the modern age is unacceptable. The new theoretical framework established in this dissertation—entitled the Balance Theory of strategic coercion—addresses this deficiency. The Balance Theory stresses that three key coercive elements of strategic coercion are fundamentally important for successfully ending the hostilities posed by NSTOs, being: A) Isolation of external/international support; B) Denial; and C) Isolation of popular support. It posits that these three aspects of strategic coercion serve as the sine qua non for success in countering an NSTO’s campaign of violence and effectively manipulating its decision-making process. Implementation of these three elements, moreover, must be pursued in tandem, taking care so as not to sacrifice one aspect for the other. The Balance Theory is tested through the employment of case-study analysis. In pursuing this end, both cross-case and within-case analyses are performed, accompanied by the utilization of the methods of focused, structured comparison. The cases examined are those of: 1) The United Kingdom versus Republican NSTOs (1969-2007); and 2) Israel versus Palestinian NSTOs (1967-present). The dissertation concludes with an examination of how the Balance Theory may provide insights for the formulation of counter-terrorism strategy against Al Qaeda in the current "War on Terror".