Several policymakers argue against negotiating with transnational terrorists because of the inability of terrorist groups to form credible commitments. To succeed in negotiation, terrorists must convince target governments that they are credible bargaining partners. This paper explores how constraints from host states affect the ability of terrorists to form credible commitments. If facing sufficient threats, host states may have an incentive to broker peaceful agreements. Hosts that have the ability to monitor and impose moderate costs on terrorist groups can increase the likelihood of negotiated settlements. The paper concludes with an empirical test of the model's hypotheses using data on transnational terrorism in the pre-9/11 period from 1968 to 1991.