This background paper for the World Bank’s World Development Report 2011 discusses current financing arrangements for postconflict countries and fragile states, with a focus on official development assistance. In recent years a consensus has emerged that in these “difficult environments” the core objective is to build effective and legitimate governance structures that secure public confidence through provision of personal security, equal justice and the rule of law, economic well-being, and essential social services including education and health. Yet tensions persist between business-as-usual development policies on the one hand and policies responsive to the demands of peacebuilding on the other. The preferential allocation of aid to “good performers,” in the name of maximizing its payoff in terms of economic growth, militates against aid to fragile and conflict-affected states. Compelling arguments can be made for assistance to “poor performers” if this can help to prevent conflict and build peace, but the difficulties that prompted donors to become more selective in aid allocation remain all too real. The move to selectivity came in response to evidence that in some contexts aid has perverse effects on economic performance. The same dilemma arises when aid is assessed in terms of its impact on peace and conflict: sometimes aid helps to prevent conflict and build peace, but sometimes it can have the opposite effect. This paper considers how international aid can more effectively help to build resilient states and durable peace.