This article develops expectations about the use of military force by democracies facing domestic terrorism. Due to the necessity of balancing effective counterterrorism with liberal acceptability, domestic terrorism typically represents a significant but nonexistential threat to democracies that is ineradicable via repression; as such, it is likely to generate appreciable diversionary incentives. Moreover, the use of force abroad, coupled with counterterrorist strategies that seek to safeguard democratic legitimacy, allows leaders to provide benefits both to citizens who seek retribution against terrorists and to those who value the preservation of liberty. Tests of the correlates of dispute initiation across all democracies, 1970–2000, provide support for this hypothesis. Further analyses reveal that diversion from domestic terrorism is most likely by democratic governments with relatively greater diversionary capacity and with lesser repressive capacity and incentive.