The modern notion of "separation of Church and State" is indeed nonsense, and the sooner we drop this idiotic notion that there must *never* be any established religion, we'll be better off. Separation has led to an acrimonious divorce.
As far as the Davidic kingdom goes, it was less the culmination of God's great plan for the Hebrews, than a concession to their stubborness (cf. 1 Samuel 8)--
8:7. And the Lord said to Samuel: Hearken to the voice of the people in all that they say to thee. For they have not rejected thee, but me, that I should not reign over them.
8:18. And you shall cry out in that day from the face of the king, whom you have chosen to yourselves: and the Lord will not hear you in that day, because you desired unto yourselves a king.
It is a great tragedy that all the ideas that were originally Jewish have come to be perceived as non-Jewish and even anti-Jewish ideas (Theocracy, holy war, etc.). I don't know how long it will take for Jews to re-learn their own heritage after attacking it in others for so long. I suppose when they stop using Scottish names and actually go back to using Hebrew names like Yedidyahu.
The modern secular state is a recent phenomenon. In ancient times religion was neither private nor purely interior but formed the public life of the nation (though most of these religions were false). Today in the modern secular state we have Pat Buchanan putting his loyalty to fellow northwest-European-descended Protestants ahead of his (non-existent) loyalty to his indigenous Mexican co-religionists. This is a thoroughy modern notion and whether Buchanan's loyalty is motivated by race or secular state citizenship he is most certainly not being an orthodox Catholic.