Objective Relatively few empirical studies have analyzed the foreign policy options that leaders employ to counter terrorism, and the results have been mixed to date. This study takes a fresh look at two such policies: foreign aid and foreign military intervention.

Method Using system generalized method of moments to control for endogeneity and a technique that identifies short‐ and long‐term effects, we examine the impact of both policy options within a sample of 122 countries from 1970 to 2005.

Results The results suggest that foreign aid may be associated with an increase in the number of terrorist incidents, fatalities, and casualties. They also indicate that foreign military intervention increases terrorist incidents in the short term and may eventually reduce them in the long term.