Can third parties build nations after ethno-sectarian war? We provide a positive theory of peace building that highlights trade-offs that are inherent in any foreign intervention, narrowing the conditions for success even when interventions are well resourced and even-handed. A “sectarian” dilemma arises because peace must rely on local leaders, but leaders who earned their reputations through ethno-sectarian conflict have no incentive to stop playing the ethnic card and will not provide public goods. Intervention can shift those incentives if it stops ethnic violence and rebuilds state institutions. But an “institutional” dilemma arises if intervention crowds out local leaders, limiting state legitimacy and constraining the pace with which state building unfolds. The window for a lengthier, slower pace of foreign-led state building will close due to its own success as the population switches from ethnic to national identification, creating a “sovereignty” dilemma that pushes third parties out. If intervention ends before institutions can deepen leader incentives for a unifying nationalism, violence will likely recur. We provide an “intervention diagnostic” that reflects these three dilemmas, which are a function of the type of intervention, local political development, and the identity of the intervener. In deciding whether to intervene, the limits of building self-enforcing peace should be weighed against the likelihood and costs of ongoing violence.