What causes the increase in terrorism that reportedly often follows government concessions? Given this pattern, why do governments ever conciliate terrorists? I propose a model in which terrorist organizations become more militant following concessions because only moderate terrorists accept them, leaving extremists in control. Governments nonetheless are willing to make concessions because their counterterror capabilities improve because of the collusion of former terrorists. Former terrorists undertake this collusion to insure the credibility of government promises. The model also yields hypotheses regarding the level of government investment in counterterror, when moderates accept concessions, the terms of negotiated settlements, the duration of terrorist conflicts, incentives for moderate terrorists to radicalize their followers, and incentives for governments to encourage extremist challenges to moderate terrorist leaders. The model is illustrated with an application to the Israeli/Palestinian conflict.