A theocracy is a form of government where priests or holy men are in charge of the government. The government is run to benefit the people, but, more importantly, in accord with the wishes of the almighty, as interpreted by the holy men and priests. According to the theory, it is the will of God that such men be in charge of running things, and political dissent is sinful and wrong-headed, if not outright heresy.
In the modern world, theocracies tend to be backward-looking, seeking to return their country to some usually mythical past state of grace and away from the evil and corrupt modern world. Diplomacy tends to be extremely difficult for such countries, since countries who act against their interests are doing so at the urging of the devil, rather than because the other countries have their own points of view and objectives. How can a holy leader compromise with an imp of Satan?