This article explores the politics of decentralization and state-peasant encounters in rural Oromiya, Ethiopia. Breaking with a centralized past, the incumbent government of the Ethiopian People's Revolutionary Democratic Front (EPRDF) committed itself to a decentralization policy in the early 1990s and has since then created a number of new sites for state-citizen interactions. In the context of electoral authoritarianism, however, decentralization has been interpreted as a means for the expansion of the party-state at the grass-roots level. Against this backdrop, this article attempts a more nuanced understanding of the complex entanglements between the closure of political space and faith in progress in local arenas. Hence, it follows sub-kebele institutions at the community level in a rural district and analyses their significance for state-led development and peasant mobilization between the 2005 and 2010 elections. Based on ethnographic field research, the empirical case presented discloses that decentralization and state-led development serve the expansion of state power into rural areas, but that state authority is simultaneously constituted and undermined in the course of this process. On that basis, this article aims to contribute to an inherently political understanding of decentralization, development and their entanglement in local and national politics in rural African societies.