The war on terror and the war in Iraq pose three challenges for foreign aid. The first concern is that donors may hijack foreign aid to pursue their own security objectives rather than development and the alleviation of poverty. The second concern is that the costs of the wars in Afghanistan and Iraq and the wider war on terror will gobble up aid budgets. The third concern is that major donors are continuing to impose competing and sometimes clashing priorities on aid recipients and this erodes rather than builds the capacity of some of the world's neediest governments. This article assesses the emerging aid policies of the United States, Japan, the United Kingdom and the European Union and proposes practical measures that could bolster an effective development-led foreign aid system.