This paper, commissioned for the development of the national report, "National Excellence: A Case for Developing America's Talent," examines current state policies, regulations, and legislation concerning education programs for gifted and talented students. The paper also looks at other state policies which have a direct influence on the nature and scope of local programs for gifted and talented students. Recent policies to restructure education are considered in the context of their effects on programs for gifted and talented students. Specific principles are recommended for shaping the reform agenda in the areas of curriculum and instruction, accountability, and governance. For each principle, examples of actions and potential impact on gifted and talented students are discussed. In addition, approaches taken by states to the following traditional issues are considered: (1) whether gifted and talented education policies should be linked with special education policies; (2) how the state should define and demarcate the gifted and talented population; (3) whether the state should mandate services for gifted and talented students; and (4) how the state can provide fiscal incentives to districts for gifted and talented education programs. The paper concludes with a checklist for states in policy development and recommendations for federal leadership. (DB)