The hadith “al-khayr kulluhu fī al-sayf” (“All goodness lies in the sword”) has, in certain interpretations, been regarded as a textual foundation for the primacy of coercive power in Islamic politics, thereby influencing modern debates on religion and violence. The central question of this study is whether the narration implies an exclusive identification of goodness with coercive force, or whether it should be understood within a restricted and contextual framework. Employing a descriptive-analytical method grounded in both isnād criticism and semantic analysis, this article re-examines the hadith through the lenses of the Qur’an, Prophetic tradition, rational principles, and ethical norms, situating it within a broader theory of power in Islamic political thought. The findings indicate that although the narration possesses relative chain-of-transmission credibility in major Imami sources—most notably al-Kāfī—its absolutist reading is incompatible with the comprehensive framework of Qur’anic teachings, the Prophetic and Alid praxis, and the rational-ethical foundations of Islamic governance. The study argues that within Islamic political theory, coercive power is not an intrinsic end but an exceptional and conditional instrument constrained by justice, necessity, and legitimate defense, while moral legitimacy, dialogue, and social justice remain foundational components of political order. Consequently, reductionist readings that equate religion with hard power risk legitimizing unregulated violence. A defensible understanding of the hadith, therefore, requires a systematic interpretation embedded in ethical and jurisprudential rationality. Consequently, reductionist readings that equate religion with hard power risk legitimizing unregulated violence. A defensible understanding of the hadith, therefore, requires a systematic interpretation embedded in ethical and jurisprudential rationality.