Furthermore, the idea of an Islamic state is not borne from Islamic culture. The idea stems from a European view where law is positive and the state is totalitarian entity that seeks to form society in the state's image. Historically, Islamic societies have differentiated between state and religious institutions, and permitting a state to force its view upon unwilling citizens violates the principles of Islam that teach individuals to live through personal choice and accept differences and disagreements with others.
Islamic societies have traditionally differentiated between state and religious institutions because religious and political authorities are fundamentally different. Religious authority comes from personal, subjective judgments about a scholar's religious piety and knowledge. Political authority is determined on an objective basis as people assess a leader's ability to exercise coercive power and administrate effectively. Additionally, religious authority invokes divine power, which transcends human challenge, whereas political authority is supposed to represent the views of the population and is thus based upon human judgment which can be challenged by other human beings.
Also, the flexibility of Shari'a conflicts with the state's need for practicability and stability. As demonstrated below, Shari'a is subject to changing human interpretations, and if Shari'a is the entire basis for a state's law, then that law could be undermined by the potential for wholesale change. Further, Shari'a does not provide effective guidance for the state on practical issues like daily administration and international trade.
Practices of the Prophet Muhammad support the idea that a state needs skills that stand apart from religious authority. The Prophet repeatedly appointed a man as commander of the Muslim armies even though the Prophet was dissatisfied with the commander's religious piety.
Just like there is an inherent connectedness between religion and politics, there is interplay between religious and political authority. For example, a political leader may have a degree of religious authority. But the fundamental differences between religious and political authority mandate separating the two precepts.
Why the State should be Secular
The base of this discussion is Professor An-Na'im's belief that the state should be secular (i.e. neutral about religion) and not an enforcer of Shari'a.
First, the state should not commandeer Shari'a because Islam decrees that Muslims practice their religion through personal, voluntary conviction without the influence of state coercion. Additionally, the idea of a secular state is more consistent with Islamic history than the notion of an Islamic state that conflates religious and state institutions.
Second, state enforcement of Shari'a undermines the religious authority of Shari'a and leads to possibilities of hypocrisy (nifaq). For example, consider how some Islamic scholars assert that apostasy (heresy) is punishable by death although the Qur'an does not provide any legal punishment for apostasy. Thus, if a state enforced the views of those scholars, then some Muslims may be forced to contradict their own beliefs, violating their personal freedom of religion, and undermining the credibility and coherence of Islam itself.
Ref : Critical Thinkers for Islamic Reform - A Collection of Articles from Contemporary Thinkers on Islam