Religion has a long history of politics, and politics a long history of religion. The two have always proven inseparable, even where history has tried.
In most beginnings, the gods give laws to the people. This makes the laws themselves divine, sacred, sacrosanct. The gods provide order to the universe, and then they provide order to the people. If it's not the gods who give the laws, it's their representatives, their divinely chosen. The point is clear, that these laws are given by those better than you for your own good.
Once you have rules, you also need rulers. Who rules? Those better than everyone else. Quite often, these people are reputedly living gods, descendants of gods, or the most favored of gods. King and conquerors take on the trapping of religion to reinforce their hold on powers while alive. And in death, they continue to live on. When these rulers die, their divinity gives them a place in heaven while the ordinary person faces a darker afterlife because they aren't gods, they aren't divine.
While religion and state may be one, that doesn't necessarily make the state a theocracy. In a theocracy, the religion is dominant over the state, where in most temporal kingdoms, the state is dominant over religion. It's about who's driving the bus.
Rulers cement their rights to rule through religion. The most common right is birth, that they are literally born better than everyone else. They trace their ancestry directly back to that of a god, usually the most powerful god, and by that, eclipse all other claimants. This works pretty well, except for daddy king's tendency to produce many children in order to guarantee an heir. Now you have lots of siblings, all with the same claim. Some societies solve this dilemma by choosing the next king, some solve it by using the first born as king, but most solve it through vicious civil wars. The first job of every new king is beating down the other claimants to the throne.
In India, the caste system added interesting dimension to who gets to rule. As they believed in rebirth, and that your position in birth demonstrates your spiritual quality, then those born into the upper classes, by virtue of having been born upper class, have demonstrated a measurably higher state of being, so they get to rule their lessers.
In the Roman Empire, new emperors played seven degrees of godhood, whereby they paid a genealogist to connect their ancestry to a god. These connections were worthless, of course, but divine blood was a prerequisite for the throne and a little lying never stopped anyone.
By the middle ages, blood relations to a god had ceased and divine right had appeared. You were king because God wanted you to be king. Because you were king, God didn't want anyone else to have the throne. This worked pretty well once a king killed off his competition, but with each new generation, there were more siblings to fight it out.
In China, the gods favored those who won, resulting in centuries of all-out blood fights for the throne because winning meant favor. Everyone believed, or at least claimed with some measurable proof, that their victories meant that the gods now smiled upon them. Everybody likes a winner.
Sometimes it's not who you are, but what you have, that matters. Who controls the special McGuffin that let's them claim the kingship? In England, the monarch sits over the Stone of Scone, which gives them a claim on Scotland. Essentially, it's a sacred stone, which is why it gives rulership. There's also the One Ring, which besides being evil, will give Sauron effective dominion over all Middle Earth. As he's already evil, no harm, no foul.
Controlling the capital goes a long way towards asserting your dominion. Religiously, the capital is the center of the world, the place where all your gods are, the place where the temples are the thickest.
Getting control is one thing. Keeping it, that's another good place for religion.
Once a state exists, it creates ceremonies and rules about itself that greatly resemble religious rules. Flags, banners, and symbols of the state represent the divine ruler, and because they represent divinity, they are divinity, they are idols. How one treats them is a direct substitute for how one treats the throne. Emperors and kings used to touch banners, giving them divinity, giving them to their troops. These banners would therefore be sacred, important, and worth protecting. To lose a banner, a symbol of your divine ruler, is a shame beyond reckoning, and for the victors, a prize worth displaying. The defense of a banner is therefore religious fervor.
When states win battles, they often send gifts to temples commemorating those wins, and by extension, thanking the gods. Symbols of the enemy are particular prized as they represent a victory of your gods over their gods. Objects worn by the enemy rulers and kings are especially prized. Symbolically, your god now has dominion over their gods.
When conquering a foreign country, toppling its gods was a frequent action, but not always. The victors sought to symbolically display the destruction of their opposition's political sovereignty. In the place of the losing god there would be raised the victorious god. In this sense, a temple becomes a victory trophy. Whoever wins gets the trophy. It's sorta like the Stanley Cup.
Sometimes gods weren't toppled. In the Roman world, where the Greek gods were well known, it made no sense to topple the gods because Zeus and Jupiter were equated as the same god. In that case, it was politically foolish to change one god for the other.
In most kingdoms and civilizations, the rulers didn't directly control the religion or temples. Religious institutions acted independently, managing and supporting themselves through outside support. Because religion wasn't centralized, taking over religious would require putting in an infrastructure, and the only people capable of doing that ran the temples. This meant that religions tended to keep independent of the state, which simplified the state but sure did complicate politics. The kings ruled, but they had to avoid offending the religious establishment.
Rome was odd because the temples themselves were seen as parts of the government, like a Department of Temples. The people who ran the temples were political appointees, and the state directly funded the temples. It should come as no surprise then that the Roman Catholic Church would later run itself on the same principles, where the local rulers dictated the clergy.
A trope found in many films is the tribal chief supported by his witch doctor. Essentially, the ruler and the religious professional are a team. If the local priest disapproves of you, then everyone disapproves of you. Because of this, the witch doctor is feared by everyone as he can turn the state to his whim.
Of course, the gods could just skip the whole human thing and rule themselves, which they do in a number of work. However, this is rare unless it's a god against god story, or the stage is set lower down.
The problem of basing the state on religion is that the state is tied to religion. A new religion or atheism constitutes a threat to the state, undermining its political foundation. If the ruler is no longer seen as religious or religiously favored, then his replacement goes from unfathomable to very possible. When this happens, the rulership has no choice but to eliminate that which threatens it. This was the very problem that early Christians introduced into the Roman Empire.
At a local level, religion and the state is usually well separated. Nobody is special, even the mayor or the town headman. The closer to a locality, the less divine a person seems, the more likely that they need the favorship of their friends and neighbors to rule, and the more likely that the rulership consists of actual work and coordination. Running a locality means meeting the needs of your constituents because you aren't divine and you are replaceable.
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