In this study, we examine whether foreign aid decreases terrorism. We analyze whether aid targeted at specific sectors, such as education, is more effective than others. We use the most comprehensive databases on foreign aid and transnational terrorism, AidData and ITERATE, rather than the relatively small samples used in most previous studies, and provide a series of statistical tests. Our results suggest that foreign aid decreases terrorism especially when targeted towards sectors such as education, health, civil society, and conflict prevention. These results indicate that foreign aid can be an effective instrument in fighting terrorism, if targeted in the right ways.