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Although it has been widely accepted that peace and democracy are inextricably linked in rebuilding countries emerging from civil wars, there is an inevitable tension in promoting peace and democracy in the post-conflict environment. This article figures out the relationship between peace and democracy promotion in post-conflict transitions and examines the effects of political institutions designed at the resolution of conflict. Since the tension between peace and democracy building is particularly evident in the negotiated settlement of civil war, this article presents a theoretical claim and empirical analysis of why negotiated settlements face a dilemma in making peace and building democracy, while focusing on the effects of power-sharing institutional arrangements. Power sharing has been prescribed as the most effective institutional option for addressing the security dilemma and credible commitment problems of civil war adversaries. The empirical results of this article, however, show that power sharing is likely to function as an institutional barrier and generate long-term adverse effects on the establishment of sustainable peace and democracy.