The link between foreign aid and military conflict has received little attention in both aid effectiveness and interstate conflict research. This study provides a first-cut analysis of the impact of foreign aid on interstate conflict among recipient countries. In doing so, it opens the black box of state and builds on the previous research in the aid effectiveness literature and on the signaling processes in the conflict literature. Previous research indicates that the effectiveness of aid in improving citizen welfare is conditional on the presence of democratic institutions. This study shows that this conditional relationship has a detrimental effect on crisis bargaining outcomes. Foreign aid, on the one hand, increases citizen welfare in democratic regimes; hence, also governments' exante re-election prospects. On the other hand, foreign aid retards government ability to generate audience costs and to send informative signals to their opponents. Analyzing all dyads from 1961 to 2001 yields robust support for this view. As aid inflows increase, targets' resistance propensity against threats issued by democratic governments becomes statistically indistinguishable from threats issued by autocratic governments. Moreover, democratic states are not significantly more peaceful to each other than non-democratic pairs once we take into account the amount of foreign aid they receive.