Recognizing that clear standards and strong incentives alone are not sufficient to transform teaching, policymakers now discuss "capacity-building" strategies. An examination of capacity-building strategies in eight states is provided in this report. Capacity refers to the wherewithal needed to translate high standards and incentives into effective instruction and strong student performance. The eight states--California, Colorado, Florida, Kentucky, Maryland, Michigan, Minnesota, and Texas--represent various approaches to systemic improvement. Key questions in the text include: What are common patterns in the ways states currently build capacity for education reform? and What are promising directions that emerge from these policy strategies? For the study, a research team visited each state during the 1996-97 academic year and used structured interview questions to talk with approximately 19 policymakers in each state. The interviews were supplemented with background documents. Findings show that all eight states addressed four common areas of capacity, albeit with different degrees of emphasis: building external infrastructure to provide professional development and technical assistance, setting professional development and training standards, providing curriculum materials, and organizing and allocating resources. The strategies reflect the approaches underlying current standards-based reform and indicate that policy ideas do matter. Four appendices provide details on the status of standards, assessment, and other information. (Includes 57 references.) (RJM)