Poorly functioning public sector institutions and weak governance are major impediments to growth and equitable development in many developing countries. The topic is important because of its centrality to development. This strategy paper reviews the World Bank's recent work on governance, public sector institutional reform, and capacity building, particularly in core public institutions. The agenda for the next three years is to continue to foster changes through the advancement of analytic tools, new approaches to the design of lending operations, expanded emphasis on partnership with clients and other donors, and progressive shifts in staffing, incentives, and evaluation techniques.