Islamic Perspective on Theocracy
The actual meaning of Theocracy is that rule belongs to God, but in Christianity, Judaism and Hinduism there was no proper way of implementing this concept, so it often degenerated into unbridled rule by religious leaders. The consequence is that no one thinks of `the rule of God` when he hears the word `theocracy`. What comes to mind instead, is rule by religious leaders.
Theocracy has been translated as `rule by religious leaders` in Urdu books on politics: but to give religious leaders the status of real rulers instead of Allah ﷻ is the worst form of associating partners with Him. The Holy Quraan severely rejects it:

ٱتَّخَذُوٓا۟ أَحْبَارَهُمْ وَرُهْبَـٰنَهُمْ أَرْبَابًا مِّن دُونِ ٱللَّهِ

They have taken their rabbis and priests to be their Lords beside Allah…. [At Tawbah 9: 31]

Hence the most fundamental principle underlying Islamic politics is to acknowledge that the ultimate ruler is Allah ﷻ. This has nothing to do with rule by religious leaders, which Christianity adopted in the name of theocracy, and which became so notorious that people now do not even want to hear its name.

In Islam, on the other hand, `the rule of God` has kept its proper meaning. Its obvious implication is that whatever commands and guidelines Allah Most High has sent to man, whether in the form of the Holy Quraan or the Noble Hadiths, they are the first and foremost sources on which an Islamic government is to rely. The government is not permitted to make a law that contravenes them, or to take any take steps that do not conform to these guidelines.

In short, the acknowledgement that ultimate sovereignty belongs to Allah ﷻ is what
distinguishes Islamic politics from secular democracy.

In the latter, the parliament or other national assembly, in its capacity as public representative body, has the power to enact any law it likes. If the constitution of a country restricts the legislative powers of its parliament, the parliament can remove those restrictions by amending the constitution.

The constitutional bases of an Islamic government, however, are the Holy Quraan and the Sunnah; and they are unalterable. There can be no law, or article in the constitution, that does not conform to them.

When recounting the history of different fields of human intellectual activity, Western writers often make no mention of the long era of Islamic governments, in which a different concept of politics was presented. As for political systems of religious origin, they mention only the theocracy of Jews, Christianity and Hinduism. There is no mention of how Islam has made the concept of Allah being the Ultimate Ruler, the basis of its politics, or of what was the foundation of the Righteous Caliphate or subsequent Islamic governments. This is the outcome of the prejudice the West has towards Islam and Muslims. Intellectual integrity and honesty, however, require that at the very least one would mention the Islamic concept of politics, even if only as a theory, and the governments that were established according to that concept.

Faith in Allah's Ultimate Sovereignty is an extremely important principle that causes a number of facts to become clear almost on its own.

Ultimate Rulership belonged and belongs to Allah, but He sent the first human being as His representative, to rule according to Divine guidelines: Sayyidina Adam AS. Other human beings who appeared in due course were his subjects. This is how government came into being, with the appearance of the first man. But the underlying principle of this government was that ultimate Sovereignty belongs to Allah ﷻ. No one has the right to govern in a way that does not accord with the Divine Commands. Anyone in a ruling position is in fact subject to Allah's Ultimate Rulership. He represents Divine rule on earth, and so such a person is called Khalifah (caliph). That is why government by an Amir al-Mu'minin (Commander of the Believers) is called Khilafah (caliphate), and the Amir al-Mu`minin himself is called Khalifah (caliph).