The nation-state is a specific product of Euro-American history and political thought. While many in the modern world take its existence for granted or view it as a "neutral" form of political organization, the fact is that the state is a contingent phenomenon with its own specific metaphysics. While many Muslims (and not just the extremists) have expressed the desire for an Islamic state that will provide them safety, dignity and freedom from oppression; the fact is that "Islamic" and "state" are contradictions in terms.
Hallaq lays out a few of the main reasons why such a state is logically impossible. This is not to say that a political entity governed by paradigmatic Islamic beliefs is impossible, indeed many have existed in history, but a "state," in the modern sense is completely antithetical to Islam or to any morally-grounded tradition at all.
Firstly, in a state, sovereignty theoretically resides in something called the popular will. In practice, states end up being governed by bureaucratic functionaries or by the will of organized elites, but philosophically they are presumed to be an expression of the will of the people that they govern. This is true even for undemocratic states, which nonetheless claim to represent "the nation" that they rule. The goal of the state becomes purely to increase the power of the nation it represents. But by virtue of being divorced from any other transcendent purpose, the nation-state ends up becoming an end unto itself, existing for no teleological purpose other than its own continued perpetuation. In this way the state becomes a kind of modern god: simultaneously transcendent and immanent in the world, immortal, and holding the power of life and death over its subjects. It should be very obvious why such a polity can never be reconciled with Islam, unless it is altered so much that it ceases to be a "state" altogether.
The modern state is also by its nature positivistic. Its practical concerns are accordingly centered on acquiring power and manipulating the natural environment. This positivism has no room for moral constraint, which is what would have to exist in a genuinely Islamic state. It is difficult to imagine any modern state foregoing, say, a dam-building project because the budget is tied up with mandatory two percent Zakat payments that are an inalienable right of the poor under Islam. States by their nature are obsessed with their own survival and perpetuation and have little time for any "irrational" constraint. However under Islam, or any other moral tradition, the goal of society is to cultivate human morality and adhere to the strictures of the divine. In this way sovereignty can rest only with the divine, not with the popular will or any statist embodiment of it. This is another apparently insoluble problem for the state as presently understood.
Furthermore, a state by its nature requires a bureaucratic apparatus to function - an apparatus whose natural workings must inevitably culturally penetrate society and constantly remake it in a new image. A state needs soldiers, teachers and engineers (etc.) that can operate along its positivistic logic. But more importantly, a state cannot tolerate true social independence in any of these fields, nor can it tolerate powerful and independent sub-state institutions. The existence of an independent law-making body (such as the traditional ulema) or traditional family or clan networks is completely anathema to the bureaucratizing logic necessary for a modern state. As such, these must be destroyed for the state to truly attain control over the society is governs.
Paradigmatic Islamic governance was very different from this. Whereas state intervention in society is the norm today, in traditional Islamic polities it was the exception. Instead of the state legislating in a top-down manner, the government of such polities was in many ways constrained by the strictures of a law that developed organically from the bottom-up which it could often not control. Needless to say no modern state could tolerate such a circumstance, nor would it be a "state" if it did.
The traditional institutions of the Sharia were irrecoverably destroyed during colonialism, after they were correctly identified by the colonists as an impediment to the bureaucratization and economic subjugation of Muslim societies. While its moral force remains and is a source of nostalgia for many, the practical reality of the Sharia has been killed with no chance of reviving it in the form that it had once existed.
Hallaq, who is not a Muslim, is perhaps the world's leading scholar on the Sharia. Like many Muslim, Marxist and Christian philosophers, he is deeply concerned about the amoral nature of modern governance, in particular the "Project of Destruction" which its disenchanted metaphysics are in the process of inflicting on the planet. As he sees it, the traditional worldview of Islam is one in which every part of the world is imbued with value. There is no "dead" physical matter for our manipulation that is separate from moral concerns, nor is there a division between categories like the "moral," the "legal" or the "political." All these categories are necessarily merged into one, as is necessary for true flourishing on this planet. By its nature a state disenchants the world, Hallaq argues. By approaching the world in a positivistic manner and through its technologies of governance, a state cannot help but be amoral, and by its nature it will manufacture a national community that is similarly amoral - trapped in Weber's "iron cage" of bureaucratic rationality. There is no path out of this problem through the nation-state, which has been among the most powerful vehicles for disenchantment in the first place.
Hallaq's argument is a worthwhile rejoinder to Islamists, many of whom have become so obsessed with the state that they have effectively begun worshipping it as a god itself. Their project is a contradiction in terms and ends up emulating the worst aspects of the same Western modernity that it claims to reject. Creating a truly moral or "Islamic" form of governance is going to take a lot more work and creativity than simply Islamizing the language around the same oppressive state structures that prevail today.
Hallaq is undeniably brilliant but my one complaint with him is his incredibly dense and academic writing style. One needs to have a considerable level familiarity with the Western and Islamic philosophers he references to appreciate this book, as well as a degree of tolerance for his very obtuse academic writing. Despite his protestations in the introduction, he doesn't really try and make his writing accessible to the general public. But despite these minor complaints I would class this as a necessary read for those interested in issues of political Islam. The ending of the book hints at possible "ways out" of our present dilemma, but such difficult questions will have to wait for subsequent writings to be answered.