A rough translation of Isaiah 45:7 could be that "[God] forms light and creates darkness, makes peace and creates evil." For one who was seeking to ask whether God is responsible for moral evil in the world, such a translation could result in a resounding "yes." Those with less pure motives might even use such a verse to accuse the God of the scriptures of being imperfect, evil, or false. Before we let such a conclusion stand, let us examine the verse more closely.
"Evil" meaning moral evil, sin, etc. is actually a very rare definition of the Hebrew word "ra." (ranging between definition 3rd and 10th in various lexicons) I would disagree with libronix and other parsing tools identification of the word in this verse as a substantive adjective, and rather classify it as a masculine noun. (The forms for adjective and masculine noun are identical for this word.) The primary meaning of "ra" when used as a noun is "evil, disstress, adversity." When one asks philosophical questions such as, "is God the author of evil?" it refers to moral evil. Evil in the primary use of "ra" as well as in this verse refers to evil circumstances, such as come upon one in a natural disaster or the aftermath of a military defeat. As a result, I would translate the verse as, "who forms light and creates darkness, who makes peace and creates distress. I am the Lord, who does all these." Several translations render "ra" in this verse as "calamity" also, which is in keeping with this definition of the word.
This is a poetic section of Isaiah, so examination of the parallelism of the text is important as to its meaning. Each of the first two lines of the verse consists of a pair of opposites, and the two pairs are compared to one another through a synonymous parallelism. Therefore, Just as God "forms light and creates darkness" so also He "makes peace and creates distress." This assertion that each pair of opposites is a synonym for the other is further strengthened by the fact that the second verb in each pair is identical.
Furthermore, within its pair of opposites, "ra" is not compared with "tov" (good), but instead with "shalom" (peace). If God was said to make good and create evil, interpretation of "ra" as moral evil would be justified, but just as light and dark are opposites, so must be "shalom" and "ra." Therefore, evil in this verse must be the oppoiste of peace rather than of good, thus the translation of "distress" (or adversity, calamity.)
Looking at the context of this verse, we see it is Isaiah's prophesy concerning Cyrus (who did not know God [v. 4-5]) who will allow the captive Jews to return to their land. God is about to give "peace" by returning His people to the land, just as He also brought the "evil" of their downfall and captivity to Babylon. The Old Testament speaks frequently about God fighting against His own people when they have been unfaithful. So, here, he is about to use an unbelieving pagan ruler to return the people to the land, just as he used an unbelieving pagan ruler to exile them in the first place. Even the actions of pagans and evil men serve to accomplish God's will.
Several commentaries also propose that this shows God to be greater than the Persian gods. The Persian religious system was dualistic. There were separate good and evil gods. One created light and was responsible for all good; the other created darkness and was responsible for all evil. This serves to show Cyrus and those who witness the events of scripture that unlike the dualistic Persian god, YHWH is in control of all things with no rival, making Him far greater.
Why would God work "evil" or distress, calamity, and adversity? God's will comes down to one thing. Salvation. (See Luther's Catechisms) God uses peace and adversity as He wills to achieve the final outcome of salvation. This is done both individually and corporately. He preserved the remnant of Israel in the Old Testament to provide for the incarnation of Christ to make atonement, and He individually uses all elements at His disposal to attain the goal of the salvation of individuals as their circumstances drive them to give thanks to God for blessing (peace) or drive them to despair of their own works and rely on God to save them (distress, adversity). This theme of scripture can be seen in this chapter of Isaiah as in v. 6, Isaiah lays out the purpose of God's activity, "That men may know from the rising to the setting of the sun that there is no other besides Me." After a poetic section on God's power and majesty, chapter 45 finally ends with a declaration of God as the only savior, in whom alone is righteousness and strength, to whom all will one day bow and the admonition to turn to Him. (v. 21-25).
Kretzman's commentary summarizes this verse by saying, "Both good fortune and misfortune are sent by [God]."
All of God's works, whether they appear good or evil in the sight of man, serve His one purpose, which is salvation. This is the point of thse verses. God is working through all events of history to bring people to "be saved and come to a knowledge of the truth." (1 Timothy 2:4)
(I expand on this idea that God uses tragedy to accomplish His will in a previous post at http://lutheranreformission.blogspot.com/2006/03/thy-will-be-done-role-of-tragic-events.html)
