This paper will ① focus on the context behind the development of the North Korean problem and the limitations of the policy resources that can be effectively utilized, in order to explain the background for the change in North Korea policy under the Lee Myung-bak administration,and ② objectively evaluate the merits and demerits of this policy change. The gist of this paper is as follows. All previous South Korean administrations have strived toward the common goal of encouraging change in North Korea (denuclearization, reform, and liberalization). But the policy measures that the South Korean government could realistically employ were limited to two economic measures, namely inducements and sanctions. These two measures are like two sides of the same coin. Excessive utilization of one inevitably reduces the effectiveness of the other. The previous administration’s policy met with difficulties in achieving its goals by leaning too heavily toward economic inducement. Learning from that experience, the Lee Myung-bak administration gave equal weight to use of economic sanctions and reestablished a principle of “compensation for cooperation, sanctions for deviation.” Within its structural limitations, the Lee administration has sought to maximize the effectiveness of its policy measures. Because North Korea had become too complacent with the one-sided generosity of the previous administration, it responded to the new policy by engaging in acts of aggression which have perpetuated sanctions. But if sanctions are implemented consistently under transparent principles, then the learning curve will improve while the cost of the North’s nuclear and anti-reform policies will rise. This can help incite change within North Korea. By maintaining clear principles, future administrations can double the effectiveness of their North Korea policies by making strategic use of the dual measures of inducement and sanctions. The North Korea policy of the Lee administration is significant in that it established the foundations for this approach.