Abstract  This paper studies the interaction between a governmental security agency, as the Transportation Security Agency, or the Immigration and Naturalization Service, and a terrorist organization, like Al Qaeda. The governmental agency wants to stop the terrorists, but first must infer whether a visa applicant or an airline passenger is a terrorist on the basis of some observable signal. The terrorist organization's objective is to get past security to commit murder and mayhem. We derive the equilibrium strategy for this signaling model, and evaluate specific anti-terrorist policies, as the creation of the new Homeland Security Agency and increased airport security screening.