The traditional approach to studying diversionary war tends to search for a direct relationship between domestic unrest and the use of force. It is more productive, however, to think of diversionary conflict as being one of several potential policies states can employ in response to domestic unrest, others being reform, repression, and foreign intervention. Thinking in terms of policy alternatives leads us to consider variables that alter the attractiveness for a decision-maker of these four policy options: diversionary conflicts might result as much from the lack of available alternatives as they do from their inherent utility in rallying the public around the regime. This research, therefore, examines the role of state extractive capacity as a variable, which can facilitate or, in some cases, constrain a government's ability to adopt an alternative policy response. By combining statistical and qualitative research methods, it not only provides a new explanation for classic cases of state responses to domestic unrest, such as the Argentina's invasion of the Falkland Islands, but it also produces a theoretical framework for understanding government decision-making during domestic crises.