Here's all the analysis I can give you (remember, I'm not a biblical scholar ; you should get a qualified book on this if the subject very much interests you).
From what I can see, the OT was written in a time period where the tribe was the basic group of humans. Sure, there were cities and such, but the Hebrews were a tribe. Thus, their main goal was survival. An angry and jealous God kept them in line and gave them something to fight for, like how the ancient Babylonians and other city states in Mesopotamia had their own patron gods.
The god of the Hebrews seemed to have a pet peeve for his people going off and whoring with these foreign gods. Again, this promoted a tough, survivalist, and even xenophobic tribe (remember that 'thou shalt not kill' means 'don't kill another Hebrew' - their 'neighbors' were members of their own tribe).
In reference to your theocracy statement, that's basically how it had to run if your goal was survival. That ensured total obedience (or close enough to it to survive this long) of the ruler.
To give you an idea of what a theocracy based on OT laws would be like, we would have to kill all men who have lain with another (though oddly, this doesn't apply to women), all disobedient teenagers, and ALL of those who work on the Sabbath. The fact that someone above me wants these as laws put in place over innocent people is brutally abhorrent.
The NT, on the other hand, was written in the setting of a massive empire, far more peaceful (yet still with the capacity of barbarism) than the setting of the OT. Therefore, a vengeful God didn't serve quite the purpose it did for a nomadic tribe. A loving God promoted a peaceful and harmonious civilization.
To me, both books seem to be perfectly set up as a control mechanism for the setting they were written in.
Constantine making Christianity the state religion after merging it with Roman sun worship effectively ensured its survival and the harmony of his empire (remember, he held the legendary Council of Nicea, which decided many aspects of Christian doctrine, including the divinity of Jesus and the Nicean Creed).
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