Understanding the distinction between the two is vital when it comes to evaluating present regimes in the Muslim world and in the aftermath of the Arab spring is essential in order to determine what changes to a constitution and state are necessary to make it more than just Islamic in name.
Sadly, some attempt to classify countries as Islamic or not utilising criterion other than those established by the Shariah evidences. So Mahmoud Ahmadinejad's condemnation of Israel and overt stance against America lead some to argue that Iran has been Dar al-Islam, a legitimate Islamic state since the Iranian revolution by Ayatollah Khomeni in 1979. They point to the implementation of some Islamic laws to back this claim. The Saudi Arabian regime together with many of its clerics continue to postulate that it is an Islamic state and thus working to remove the corrupt regime is bughat or an Islamically illegitimate rebellion. King Abdullah has even reported to have declared himself as Ameer al-Mu'mineen (leader of the believers).
The election wins of EnNahda in Tunisia and the Muslim Brotherhood in the form of the Freedom and Justice party in Egypt has also sparked the debate of what makes a state Islamic. Electoral Parties in Egypt have argued over the semantics of the proposed constitution as to whether to include Islam as 'the main source of law' ignoring the Quranic obligation of making the Shariah the 'only' source of law.
We are also seeing a trend of modernist thinkers attempting to argue away the Islamic paradigm altogether, interestingly their narrative fits into the western campaign against political Islam. An oft quoted bastion of this new heretical polemic, Tariq Ramadan states: "The concepts of Dar al-Islam, Dar al-harb, and Dar al-'ahd were not described in the Qur'an or in the Sunna. In fact they constituted a human attempt, at a moment in history, to describe the world and to provide the Muslim community with a geopolitical scheme that is appropriate to the reality of the time. This reality has completely changed". 
Furthermore, we also find some amongst the Islamic movements who claim to be working for the re-establishment of Khilafah not having a clear idea of the definition and scriptural proofs for an Islamic state. Dar al-Islam and Khilafah should not just be slogans but rather a serious objective which we are practically working to achieve. We cannot pray Salah properly without knowing its pillars (arkan) and conditions (shuroot) so how can we work for an Islamic state without knowing the same?
Thus it is important for the definition, meaning and evidences for Dar al-Islam and its distinction from Dar al-Kufr to be clarified.
In Arabic terms may have a linguistic (laghawi) usage and a technical (istilaahi) usage. Islamic scholarship has traditionally focused discussion on technical definitions of terms. These comprise terms that are discussed and defined by the Shariah texts such as salat, zakat, hajj, siyam; terms that are descriptive like mutawatir, ahad, sanad, qati, zanni and terms that are necessitated through textual injunctions in order to understand and apply Shariah rules for example aqeedah (belief), ijma (consensus) and Dar al-Islam.
The "dar" (pl. diyaar) in the Arabic language has numerous meaning such as the halting place, the house, abode, residence and the land.
It is true like most technically defined terms in the Islamic sciences the terms Dar al-Islam and Dar al-Kufr do not appear in the source texts i.e. the Quran and Sunnah in their technical form. This doesn't mean that the whole subject is indecisive. To conclude that would be like saying the term aqeedah is not to be found in any verse of Quran or Hadith so it is indecisive, a matter which is preposterous.
These terms were defined by the scholars in the early centuries of Islam for a purpose, their core meanings are decisively rooted in the texts and their branches at times disputed.
Scholars often differ over the details of terminologies, this in no way negates the subject matter as true. For example, the definition of the term, Quran, according to the Hanafi linguist Jurjani in his book on technical definitions is, "revelation to the Messenger compiled in the Musaahif and transmitted through tawatur means without doubt". 
Others have different definitions such as Imam Suyuti and Al-Aamidi. If the definitions are compared, it is apparent there are a number of differences, including the inclusion or negation in the definition of the following elements: "speech of God", "in the Arabic language" and "worship when recited".
If the logic of the modernists was followed we would conclude that there are massive differences in the definition of Quran being the speech of God or in Arabic - as these points are disputed hence the Quran must be zanni (speculative). However, the jurists as well as all Muslims did not dispute these matters and agreed that they are decisive (qat'i) due to the incontestable evidence, difference in selection of the words for defining the Quran is irrelevant.
The terms Dar al-Islam/Kufr have not been explicitly defined by the Sharia texts, however the Sharia texts necessitate their recognition in order for their implementation. For example, the texts relating to war and peace in Islam recognise relations between states and attempt to regulate them.
Whether technical terms appear in texts or not is irrelevant, rather it is required that the definitions of such terms should embody, reflect and concur with divine texts.
According to Shariah terminology, Dar al-Islam is defined as the land which is governed by the laws of Islam and whose security (Aman) is maintained by the security of Islam, i.e. by the authority and protection of Muslims inside and outside the land, even if the majority of its inhabitants are non-Muslims.
Dar al-Kufr is the land which is governed by the laws of Kufr, and whose security is not maintained by the security (Aman) of Islam, i.e. by other than the authority and security of Muslims, even if the majority of its inhabitants are Muslims.
So what matters in determining whether the land is Dar al-Islam or Dar al-Kufr is neither the land itself nor its inhabitants, rather it is the laws and the security.
The word 'Dar' has been used in the sayings of the Prophet صلى الله عليه وسلم and by his companions to mean the domain, or the Islamic State when used in relation to the Muslims, and the domain where the Kuffar have the authority when used for the disbelievers.
It is reported on the authority of Sulayman bin Buraydah, "Whenever the Messenger of Allah appointed anyone as leader of an army...He would say...When you meet your enemies from the polytheists, invite them to three courses of action. If they respond to any one of these, accept it and restrain yourself from doing them harm. Invite them to Islam; if they respond, accept it and desist from fighting. Then invite them to migrate from their Dar to the Dar of the Muhajireen (emigrants) and inform them if they do so, they shall have all the privileges and obligations of the Muhajireen. If they refuse, tell them they will have the status of the Bedouin Muslims and will be subjected to the Commands of Allah like other Muslims...'" 
What does this Hadith indicate? It is that if they did not move from their land to the land of the Muhajireen they would not enjoy the rights of the emigrants who are living in the land of Islam. So this Hadith clearly shows the difference between those who move to the land of the Muhajireen and those who do not. Dar al-Muhajireen was the land of Islam at the time of the Prophet صلى الله عليه وسلم, and all other lands outside were Dar al-Kufr.
In other narrations the Prophet صلى الله عليه وسلم said:
"Medina is the Dar of hijra (migration) and Sunnah." 
"Peace be upon you Dar (land) of the Mu'mineen (believers)." 
There are various other evidences that the scholars rely on in order to extract the definition, such as the definitive verses of the Quran that conclusively establish that the only source of law must be the law of Allah, the Shariah:
إِنِ الْحُكْمُ إِلَّا لِلَّهِ
"The Rule is for none but Allah: He declares the truth and He is the best of Judges." [Al-An'aam, 6:57]
أَلَمْ تَرَ إِلَى الَّذِينَ يَزْعُمُونَ أَنَّهُمْ آمَنُوا بِمَا أُنْزِلَ إِلَيْكَ وَمَا أُنْزِلَ مِنْ قَبْلِكَ يُرِيدُونَ أَنْ يَتَحَاكَمُوا إِلَى الطَّاغُوتِ وَقَدْ أُمِرُوا أَنْ يَكْفُرُوا بِهِ وَيُرِيدُ الشَّيْطَانُ أَنْ يُضِلَّهُمْ ضَلَالًا بَعِيدًا
"Have you seen those who claim that they believe in that which has been sent down to you, and that which has been sent down before you, and they wish to go for judgement (in their disputes) to the Taghut (false judges) while they have been ordered to reject them?" [An-Nisaa, 4:60]
وَأَنِ احْكُمْ بَيْنَهُمْ بِمَا أَنْزَلَ اللَّهُ وَلَا تَتَّبِعْ أَهْوَاءَهُمْ وَاحْذَرْهُمْ أَنْ يَفْتِنُوكَ عَنْ بَعْضِ مَا أَنْزَلَ اللَّهُ إِلَيْكَ
"Judge between them by that which Allah has revealed and do not follow their desires and beware of them lest they seduce you from some part of that which Allah has revealed to you." [TMQ 5:49]
"Judge between them by that which Allah has revealed and do not follow their desires and beware of them lest they seduce you from some part of that which Allah has revealed to you." [TMQ 5:49]
We also find the usage of the 'Dar' terminology amongst the Sahaba.
It is recorded in Sahih Bukhari on the authority of Ibn Abbas that once when Abdul Rahman bin 'Awf was speaking with Omar Bin Al-Khattab (ra) who was the Khaleefah at the time, he said,
"Do not be harsh on them (speaking about some of the Hujaaj) until they return to Madinah, which is Dar al-Hijrah, Dar al-Sunnah and Dar ul-Salaama." 
It is recorded that Khalid Bin Waleed (ra) wrote a letter to the people of Hirah (a place close to Bahrain) and he said, "I write this to you: if any of you become old, poor or ill or his people have to donate to maintain his livelihood I will never ask Jizya (tax) of him. He will also receive a grant from the Bait ul-Maal (treasury of the Islamic state). He and his children will be entitled to this as long as he resides in Dar ul-Hijrah and Dar al-Islam. If they go out (from this jurisdiction) then the Muslims are no longer obliged to provide anything for them." 
Dar al-Islam and Dar al-Kufr According to the Ulema
The terms Dar al-Kufr and Dar al-Islam have been derived from Quran and Sunnah, with all classical jurists agreeing to their core meanings, namely Islam must be applied and the security of that land cannot be in the hands of the Kuffar, with only some ancillary aspects being disputed.
A similar discussion ensued amongst the jurists regarding the question of what constitutes a Muslim (one who has submitted to Allah) and a Kafir (disbeliever). This necessitated a criterion to be extracted from the texts that deal with this topic directly or indirectly. Detailed discussions exploring all aspects of this criterion and its implications resulted in a consensus amongst the jurists of core criteria of what it means to be a Muslim and what constitutes apostasy that would make them a disbeliever. Likewise, the question of what constitutes a land or society which has submitted to Allah was discussed in detail and a core criterion agreed upon along with when this transitions to a non-Islamic land.
The jurists considered texts that centred around the concepts: authority and ruling; security and safety; war and peace; practice of Islam (outside the state); migration and ownership of land.
The famous Hanafi jurist Imaam Al-Kasaani (died 587 AH) said, "There is no disagreement among the ahnaaf (scholars of the Hanafi Madhab), that Dar al-Kufr becomes Dar al-Islam, when the rules of Islam becomes dominant. Our brothers only dispute on how Dar al-Islam transfers to become Dar al-Kufr. Our Imam (Abu Haneefah) said, 'Dar al-Islam becomes Dar al-Kufr in three (situations); when the law and order becomes Kufr, when the state has a border with a Kufr (state) without treaty or when there is no longer any security for the Muslim or the Dhimmi (citizens).'" 
Qadi Abu Ya'la (died 458 AH) said, "Any country where the law is Kufr (disbelief) instead of Islam is Dar al-Kufr."
Ibn Qayyim (died 751 AH) said, "The Jumhour (majority) of the 'Ulema say, 'Dar al-Islam is where the Muslims go and reside and the Islamic rules are dominant. If people (the Muslims) reside in one place and Islam becomes dominant, that is Dar al-Islam If however, Islam does not become dominant it is not (considered) Dar al-Islam even if it is in close proximity to the state. Taa'if was so close to Makkah (at the time when Makkah was Dar al-Islam) but it did not become part of Dar al-Islam until it was conquered.'" 
Ibn Muflih (died 884 AH) said, "There are only two, Dar al-Islam and Dar al-Kufr. Any Dar (domain) where Islamic law is dominant is Dar al-Islam, and any domain where Kufr law is dominant is Dar al-Kufr, there are only these two camps." 
He makes this point as all other categories such as Dar al-Harb (land of war), Dar al-Ahd (land of covenant), Dar al-Aman (land of security), Dar al-Baghi (rebellious land) etc are subsets of the two.
It is interesting to note that the parliamentary party of the Muslim Brotherhood in Egypt ignores this consensus as espoused by one of their greatest thinkers in the past, the martyr Sayyid Qutb said, "The whole world in the eyes of Islam is divided into two, the first is Dar al-Islam, and the second is Dar al-Harb. Dar al-Islam is where the Shari'ah of Islam alone is implemented, regardless of whether the inhabitants are all Muslims or Muslims mixed with Dhimmi (Jews and Christians) or if all of the citizens are Dhimmi with only some Muslims in power. Dar al-Harb is any land where the Kufr law is dominant even if everybody in the land is Muslim." 
As can be seen, there is no dispute on the core understanding of what is meant by Dar al-Islam and the division of the world into two fundamental spheres. Differences were discussed in relation to political realities outside of this domain, some extending this definition, and others seeking to limit it.
We should also bear in mind that terms can be used in different contexts, this is normal and common practice, for example the term Sunnah has several technical usages across the different Islamic sciences, even multiple usages within a given science. It is used to refer to Masdar al-Shariah (source of law), Seerah (biography), Hadith (narrations), Mandub (recommended), Nafl (supererogatory) etc. These multiple usages of a term were accepted throughout Islamic history and importantly never contradicted Shariah rules.
Likewise, some jurists also contextually utilised the terms Dar al-Islam with a different meaning therefore the attempt by some modernist collaborators to find a quote from a classical scholar that mentions a different meaning to Dar al Islam is disingenuous. As an example the Shafi'i jurist al-Rafi'i included in his definition that Dar al-Islam once named as such remains Dar al-Islam until the Day of Judgement. 
So here he used it as Dar al-Muslimeen i.e. that it is Muslim land. These considerations never conflicted with divine texts and the rules thereof. Jurists did not attempt to justify the rule of non-Islamic laws or creeds which the modernists do.
The Difference Between Fisq of a Ruler and Open Kufr
There is a clear difference between fisq (transgression/open sin) and ruling by Kufr just as there is between a fasiq and a Kafir. The Messenger of Allah صلى الله عليه وسلم has informed us in numerous ahadith that the leaders within an Islamic state including the Khalifah or the Wulah (governors) may make mistakes, sin and oppress citizens. This occurred in the past when some of the Khulafah raised taxes unjustly, appointed their children to rule after them, imprisoned scholars like Imam Ahmad and Imam Malik for accounting them etc. In multiple ahadith the Prophet صلى الله عليه وسلم ordered us to continue to obey them in this situation unless they commit open Kufr.
Al-Bukhari narrated on the authority of Junada b. abi Umayyah who said: We went to 'Ubadah b. as-Samit when he was sick and we said: May Allah سبحانه وتعالى guide you. Inform us of a Hadith from the Messenger of Allah صلى الله عليه وسلم so Allah may benefit you from it. He said, "The Messenger of Allah صلى الله عليه وسلم called upon us and we gave him the Bai'ah, and he said, of that which he had taken from us, that we should give him the pledge to listen and obey, in what we like and dislike, in our hardship and ease, and that we should not dispute the authority of its people unless we saw Kufr buwah (open disbelief) upon which we had a proof (burhan) from Allah."
To simplify the topic its useful to first look at an individual and not a state – so if a Muslim commits zina (unlawful fornication) he is a fasiq however if he believes zina is permissible then he becomes a Kafir if done so with knowledge. Now let's look at a state if the Khalifah or state officials under him committed zina then that is fisq, this is different to if he legalised zina and made it permissible under the law – it would then clearly be a law of Kufr and not just a fisq. Every accepted scholar in history would agree that if the ruler permitted zina that it would be Kufr buwah (open disbelief). The matter which the scholars differ on is whether by doing so they automatically become Kuffar or not, there is no disagreement that it would be a Kufr law.
There are two main views in this area: first is the opinion of Ibn Jarir at-Tabari, Al-Shawkani, Ibn Taymiyyah and many of the literalist (Zahiri) scholars who state that whoever rules by Kufr automatically becomes a Kafir. The second view is that of the companion of the Prophet صلى الله عليه وسلم, Ibn Abbas as well as others such as Ibn al-Qayyim and Ibn al-Jawzi who held that it can be Kufr akbar (major Kufr – apostasy) or Kufr asghar (minor Kufr) depending upon the situation.
Ibn al-Qayyim said: "The correct view is that ruling according to something other than that which Allah has revealed includes both major and minor Kufr, depending on the position of the judge. If he believes that it is obligatory to rule according to what Allah has revealed in this case, but he turns away from that out of disobedience, whilst acknowledging that he is deserving of punishment, then this is lesser Kufr. But if he believes that it is not obligatory and that the choice is his even though he is certain that this is the ruling of Allah, then this is major Kufr." 
When we apply this to modern states that claim to be Dar al-Islam, Saudi Arabia and Iran we can see multiple examples of not just issues of sin but clear Kufr laws. They contradict Qat'i (definitive) matters in Islam, accepting and ruling by Kufr laws in many areas such as:
• Being members of the United Nations Organisation, every member of which has to agree with international law set by human beings above the laws of Allah سبحانه وتعالى. Instead of being ashamed of this the Kingdom of Saudi Arabia proudly highlights this relationship on the website of it's Permanent Mission to the UN.  In fact it was among the first 50 nations to sign the UN charter in 1945 in San Francisco.
• Both Iran and Saudi Arabia cannot argue that they only say they accept international law as some form of deception as they are both modern non-expansionist nation states which means the abandonment of the definitive obligation of Jihad (an obligation stipulated in multiple verses of the Quran).
• Both have legalised Riba (usury) based banking. The Arab Monetary Fund, based in Abu Dhabi, is a huge Riba institution that was established by an agreement on 4/7/76 in Morocco. Saudi is the biggest share holder in it; it receives, as everyone else in the fund, riba on its shares. Iran and Saudi are also part of the riba based International Monetary Fund.
The hypocrisy of these regimes is plain for everyone to see. Saudi's overt alliance with America and Iran's warm relations with the Kafir Alawite, Bashar al-Assad of Syria who has the blood of thousands on his hands are glaring examples of this.
Therefore it is clear that currently the whole world is Dar al-Kufr as no country matches the criterion for an Islamic state. Thus we see the laws of Allah سبحانه وتعالى abandoned as if they were worth nothing, the Sunnah of the Prophet صلى الله عليه وسلم betrayed and the example of the Sahaba ignored by the rulers of our countries. It is as Imam Ahmad ibn Hanbal said, "The Fitna (mischief and tribulations) occurs when there is no Imam established over the affairs of the people".
Contrary to wishes of the enemies of Islam and their modernist defenders it is paramount for us to work to re-establish Dar al-Islam, the Islamic Khilafah state. Let us take heed in the warning of our Messenger صلى الله عليه وسلم.
Al-Tabarani narrated in Al-Kabeer wal-Bazaar, by the istinad (chains) of the men of Sahih, from 'Awf bin Maalik from the Prophet صلى الله عليه وسلم, who said: "My Ummah will be divided into seventy-something divisions, of them, the greatest Fitna (trial) upon my Ummah are a people who measure matters with their opinion, so they make the forbidden permissible and the permissible forbidden." 
Abu Ismael al-Beirawi
 Ramadan, T, "Western Muslims and the Future of Islam", Oxford University Press, 2004, pg.69
 Ali bin Mohammed al-Sharif Al-Jurjani, "Kitab al-Tarifat" (Book of definitions), 1969, Maktaba Lubnaan, Arabic Edition, pg. 181
 Sahih Muslim, Hadith no. 4294
 Musnad Ahmad 1:372
 Sahih Muslim 2:53
 Sahih Bukhari, Hadith no. 3713
 Abu Ubaid, Kitaab al-Amwaal, pg. 98 & Abu Yusuf, Kitaab al-Kharaaj, pgs. 155-156
 Bada' us-Sanaai', Vol. 7 pg. 131
 al-Mu'atamad fil Usul ad-Deen, pg. 276
 Ibn Qayyim, Kitaab Ahkaam ahl al-Dhimmah, Vol. 1 pg. 366
 Al-Adaab al-Shari'ah, Vol. 1 pg. 190
 Sayyid Qutb, In the Shade of the Qur'an, Vol. 2 pg. 874
 "Nihayat al-Muhtaj" Vol. 8 pg. 82
 Madaarij as-Saaliheen, 1/336-337
 Also narrated by Al-Haithami in Majma' Al-Zawaa'id, Part 1/ the Book of Knowledge in the section of Al-Taqleed wal-Qiyas