The most common and most likely answer to this crossword clue is the 9 letter word CALIPHATE
I've seen this crossword clue in Independent
C
A
L
I
P
H
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More clues leading to the result CALIPHATE
Buddy explains!

The straight part
We know that "theocratic state" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case theocratic state = caliphate.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does CALIPHATE mean?
CALIPHATE noun- A unified Islamic government for the Muslim world, ruled by a caliph.