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A Caliph (Arabic: خليفة ḫalīfah/khalīfah) is the term for the successor of Muhammad, and the head of state of a caliphate. In effect, a caliph is the supreme leader of all Muslims, from priests and commanders to even presidents and kings; he is their emperor, effectively. They all swear loyalty to him. The Shi'a and Sunni branches of Islam both recognize different successors. The female version is the calipha, and there actually was one ruling calipha: Sitt al-Mulk.
According to the Arab historian Ibn Khaldun, a caliphate differs from a royal dynasty in that royal rulers tend to be self-serving and corrupt, whereas a Caliph of the Messenger of Allah's responsibility is to look after people's wellbeing in this world and the next.
A chief responsibility of a legitimate Caliph is to oversee and protect the safety of pilgrims performing the hajj who converge on the Arabian Penninsula from the disparate corners of Islam annually. Needless to say, controlling the holy cities of Mecca and Medina is a prerequisite for a claimant of the title.
According to the Oxford Dictionary of Islam, each individual is a caliph of God, and must strive to do his will to bring about an Islamic society.
The institution of the caliph is not mentioned in the Qur'an, neither did Allah nor his Messenger speak of it, nor is there any guidance or direction on the selection method or duties of the office. It is entirely an invention of the Prophet's companions (Sahaba) upon the death of Mohammad. Since then various dynasties have claimed the title. In Sunni Islam, the first four caliphs of the Rashidun dynasty (Abu Bakr, Umar, Uthman and Ali) are referred to as "Righteous" or "Rightly Guided" Caliphs (الخلفاء الراشدون al-Khulafā’ ur-Rāshidūn), and ideal Sunni rulers.
The longest lived dynasty of caliphs were the Turkish rulers of the Ottoman Empire beginning when the Abbasid dynasty of Egypt surrendered it to Ottoman Sultan Selim I in 1517, ending the Arab monopoly on the title. The Turkish Sultans, as the Mongolian Khans and Persian Shahs did, added the Caliph title to a collection of other imperial honors from conquered peoples as a symbol of dominance. The Ottomans did not hold it in as high esteem as their Arab predecessors, creating some lingering resentment among the Arab populations that the Ottomans ruled. The Ottomans held the title until they finally abolished it in March 1924.
The Islamic State of Iraq was declared on October 15, 2006. The Salafist arguments behind a re-establishment of the caliphate is that parliamentary democracy creates man-made-law, whereas a basic tenet of Islam holds that all Law comes from Allah as spoken through the mouth of Muhammad his prophet. 
The first problem Daesh encountered was how to legally establish a caliphate. There is no clear precedent on the selection method. Not just any group of sycophantic sociopaths can anoint themselves the selection committee. DAESH claimed it had a plurality of 60% of tribal Sheiks on the terrorist umbrella Mujahideen Shura Council. So in combating the spread of democracy the Islamic State claims a consensus of the majority makes their caliphate legal.
Abu Bakr Al-Baghdadi, a successor of Zarqawi, declared the Islamic State with him in charge. We'll see how well this works out. After years of war and the loss of tens of thousands of fighters, the Islamic State's territory has shrunk greatly since the declaration of a Caliphate, and all signs point to it collapsing completely within a year or two.
Other wannabe caliphs
In the aftermath of the collapse of the Ottoman Empire the Sharif of Mecca proclaimed himself Caliph. This prompted the desert bandito Ibn Saud to move his tribal armies from the Arabian interior and invade the Hejaz on the coastal plain of the Red Sea to capture the holy cities of Mecca and Medina. The Saudi clan then assumed the role of custodian of the holy places, a title held by Heshamites for nearly 600 years but lost in the post-World War I chaos.
Muhammad Eid al-Rifai’i and his followers declared him caliph in 1993 following the collapse of the Soviet Union and the Afghan Najibullah regime. Al-Rifai called on Osama bin Laden to swear allegiance, legalized dope smoking to win support and funding from dope growers and smugglers, and kidnapped children from those who refused to pledge allegiance to him as caliph. The machinations ended when a turf war between his disciples and dope smugglers led to the murder of his deputy caliph. Al-Rifai returned to London.
- Ibn Khaldun, Muqaddimah, Chapter III Section 23, The meaning of caliphate and imamate. Translated by Franz Rosenthal, pp. 256-257.
- Islamic State: The only solution, n.d. ibrarian.net
- To the Rulers - Kings, Presidents and Heads of State - in the Muslim World, from the limits of the Pacific Ocean by Indonesia in the East, to the Atlantic Coast by Morocco in the West, Hizb ut-Tahrir, 2011, p. 1 PDF.
- The Caliphate, the Hejaz, and the Saudi-Wahhabi Nation-State, Imran N. Hosein, Masjid Darul Qur'an, Long Island New York, 1996, p. 11 pdf.
- The takfir of the whole of society.
- Islam views itself as a civilizing influence upon a savage world, especially modern Salafists. See Anatomy of the Salafi Movement, Quintan Wiktorowitcz, Talylor Francis Group, Studies in Conflict & Terrorism, 2006, p. 4 PDF.
- The First Pillar of Islam, There is no god but Allah and Mohammad is his Prophet.
- See for example, Democracy is a Religion, Abu Musab al-Zarqawi, based on a book of the same name by Abu Muhammad al-Maqdisi.
- Sheiks are tribal cheiftans whose authority rests upon oaths and usually come to power through means other than democratic election; Daesh has committed wholesale extermination against Sunni tribes that refuse to swear allegiance, destroying entire towns that refused to support them militarily.Islamic State 'kills 322' from single Sunni tribe , BBC, 2 November 2014.
- Would-Be Caliph’s Inaugural Address to the Islamic ‘Ummah, December 23, 2006.
- The Caliphate Attempted: Zarqawi’s Ideological Heirs, Nibras Kazimi, Hudson Institute, July 21, 2008. hudson.org