The US responded to the 9/11 terrorist attacks by invading Afghanistan. The US invasion had two perceived objectives: Military and Political. The military objective was to eliminate Al-Qaida and Taliban in order to restore peace, while the political dimension was to rebuild the Afghan state and society from scratch, to establish a healthy democratic system which would put Afghanistan on the road to prosperity. In Dec 2001, nearly all the Afghan stakeholders, except Taliban, gathered along with the representatives of international community in Bonn, Germany. The purpose of the conference was to discuss the plans which would help to materialize the dream of a stable and democratic Afghanistan. The project of democratic Afghanistan envisioned at Bonn Conference in 2001 is still far from being achieved. All the attempts made by international community to establish democracy in Afghanistan have not been met with success. The study begins with the premise that there are certain pre-conditions which enhance the growth of democracy and unless the conditions are met, democratic stability will remain a distant dream in Afghanistan. This study surveys and analyzes the deterioration of democratic system in Afghanistan with special reference to the role of ethnic cleavages and the menacing influence of foreign actors. The study recommends policies that are aimed at reducing ethnic polarization by ensuring more equitable distribution of power and resources coupled with a realistic approach on the part of Kabul to take into account the legitimate security interests of regional countries in order to compel them to play a constructive role for achieving peace and stability in Afghanistan.