Theocracy is a form of government in which the governmental rulers are identical with the leaders of the dominant religion, and governmental policies are either identical with or strongly influenced by the principles of the majority religion.
Typically the government claims to rule on behalf of God or a higher power, as specified by the religion in question.
There are different forms of theocracy. One is caesaro-papism, in which power is shared between a secular ruler (an emperor) and a religious leader (a pope). Theocracy can also be exercised directly by the clergy (as in Iran) or indirectly (such as via the divine right of kings).
Many people criticize the British monarch as being a theocratic ruler because of her title as Head of the Church in England. However, as the monarch retains only ceremonial authority, most people do not consider the United Kingdom, or any other nations with the British Monarch serving as Head of State, as a theocracy.
The concept of theocracy was first coined by Josephus Flavius in the 1st century. He defined theocracy as the characteristic government for Jews. Josephus' definition was widely accepted until the enlightenment era, when the term started to collect more universalistic and undeniably negative connotations, especially in Hegel's hands. After that 'theocracy' has been mostly used to label certain politically unpopular societies as somehow less 'rational' or 'developed'. The concept is often used in sociology also, but rarely or never properly defined for objective scientific usage.