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For nation-building in the sense of enhancing the capacity of state institutions, building state-society relations, and also external interventions see State-building.
Nation-building refers to the process of constructing or structuring a national identity using the power of the state. This process aims at the unification of the people within the state so that it remains politically stable and viable in the long run. Nation-building can involve the use of propaganda or major infrastructure development to foster social harmony and economic growth.
Definition: The development of behaviors, values, language, institutions, and physical structures that elucidate history and culture, concretize and protect the present, and insure the future identity and independence of a nation.
Originally, nation-building referred to the efforts of newly independent nations, notably the nations of Africa but also in the Balkans, to reshape territories that had been carved out by colonial powers or Empires without regard to ethnic, religious, or other boundaries. These reformed states would then become viable and coherent national entities.
Nation-building includes the creation of national paraphernalia such as flags, anthems, national days, national stadiums, national airlines, national languages, and national myths.  At a deeper level, national identity needed to be deliberately constructed by molding different ethnic groups into a nation, especially since in many newly established states colonial practices of divide and rule had resulted in ethnically heterogeneous populations.
However, many new states were plagued by "tribalism", rivalry between ethnic groups within the nation. This sometimes resulted in their near-disintegration, such as the attempt by Biafra to secede from Nigeria in 1970, or the continuing demand of the Somali people in the Ogaden region of Ethiopia for complete independence. In Asia, the disintegration of India into Pakistan and Bangladesh is another example where ethnic differences, aided by geographic distance, tore apart a post-colonial state. The Rwandan genocide as well as the recurrent problems experienced by the Sudan can also be related to a lack of ethnic, religious, or racial cohesion within the nation. It has often proved difficult to unite states with similar ethnic but different colonial backgrounds. Whereas successful examples like Cameroon do exist, failures like Senegambia Confederation demonstrate the problems of uniting Francophone and Anglophone territories.
Traditionally there has been some confusion between the use of the term nation-building and that of state-building (the terms are sometimes used interchangeably in North America). Both have fairly narrow and different definitions in political science, the former referring to national identity, the latter to infrastructure and the institutions of the state. The debate has been clouded further by the existence of two very different schools of thought on state-building. The first (prevalent in the media) portrays state-building as an interventionist action by foreign countries. The second (more academic in origin and increasingly accepted by international institutions) sees state-building as an indigenous process. For a discussion of the definitional issues, see state-building, Carolyn Stephenson's essay, and the papers by Whaites, CPC/IPA or ODI cited below.
The confusion over terminology has meant that more recently, nation-building has come to be used in a completely different context, with reference to what has been succinctly described by its proponents as "the use of armed force in the aftermath of a conflict to underpin an enduring transition to democracy." In this sense nation-building, better referred to as state building, describes deliberate efforts by a foreign power to construct or install the institutions of a national government, according to a model that may be more familiar to the foreign power but is often considered foreign and even destabilizing. In this sense, state-building is typically characterised by massive investment, military occupation, transitional government, and the use of propaganda to communicate governmental policy.
Engin, Kenan: 'Nation-Building' - Theoretische Betrachtung und Fallbeispiel: Irak, Nomos Verlag, Baden Baden 2013, ISBN 978-3-8487-0684-6