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10.1080/10242690701505419 Defence and Peace Economics 1024-2694 (print)/1476-8267 (online) Original Article 2007 Taylor & Francis 000 27 MakotoKakinaka kakinaka@iuj.ac.jp This study provides an explanation of terrorism by examining interactions between the terrorist group with a minority as a potential pool of recruits and the government supported by a majority. A hawkish deterrence policy makes it more risky for terrorists to launch attacks, but heightens the anti-government feeling of the terrorist group. In addition, the payoff for the government depends not only on the payoff loss associated with the level of terrorism, but also on the political payoff from the action itself of adopting a hawk policy due to its politicians’ vested interests. We first show that whether the deterrence policy should be ‘hawk to ‘dove is closely dependent on the relationships among the risk associated with terrorism, the anti-government feeling of the terrorist group, and the political payoff for the government. This study then introduces transnational support enhancing the capability of a terrorist group to intensify its activity and shows that the emergence of transnational support may cause the government to reform its deterrence policy from ‘dove’ toward ‘hawk,’ with terrorism intensified in the society.