Flavius Josephus coined 'theocracy' to describe a people ruled directly by God
In the first century AD, Flavius Josephus observed that most governments fit into monarchy, oligarchy or democracy, but argued the Jewish polity fitted none of them. He coined theocracy, rule of God, for a state where a deity was sovereign and divine word was law. His definition held until the Enlightenment turned the word negative.
English first recorded theocracy in 1622, in the sense of government by priests guided by divine inspiration, with ancient Israel and Judah as the model. The sense of a religious body wielding political power dates from 1825. Scholars now draw finer lines. In a hierocracy, a hierarchy of clergy governs. In an ecclesiocracy, religious leaders run the state without claiming to channel divine revelation, which arguably describes most of what people loosely call theocracy.
Vatican City is the clearest modern case. After Italy captured Rome on 20 September 1870 and absorbed the Papal States, the 1929 Lateran Treaty created the Vatican as an independent state. Its head is the pope, elected for life by the College of Cardinals, and since 1970 only cardinals under 80 may vote. Because popes appoint the cardinals, each pope effectively chooses the electors of his successor. The pope holds full legislative, executive and judicial power, and he also names the Bishop of Urgell, who serves as co-prince of Andorra alongside the President of France.
Mount Athos in Greece is a self-governing Eastern Orthodox peninsula of 20 monasteries under the Patriarch of Constantinople, with continuous Christian presence for nearly 1,800 years. Its self-rule traces to an edict by the Byzantine emperor John Tzimisces in 972, reaffirmed by Alexios I Komnenos in 1095. Greece took it from the Ottomans in 1912. Athos is exempt from the European Union's free movement rules: visitors need permits, daily numbers are capped, and only men may enter.
Traces of religious government survive even in secular democracies. The United Kingdom seats 26 senior Church of England bishops, the Lords Spiritual, in the House of Lords, and the Isle of Man's bishop sits in the upper house of the Tynwald. Pakistan became an Islamic republic under its 1956 constitution, Mauritania on 28 November 1958, and Iran after its 1979 revolution.
Source: Theocracy