Did G-d create evil? Scripture says that G-d created everything, right? So then if G-d indeed created everything, does that mean He created evil?
Is there Old Testament evidence for why He did or didn't?
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There is evil in the world so that we can appreciate the good.
There is death in the world so that we can appreciate life.
There is an evil inclination inside of us so that the good we do means something.
As the Talmud tells us:
See this article from Aish.com that addresses a lot of your questions.
Yishayhu 45:7 says "I form the light, and create Darkness; I make peace, and create evil; I am the LORD, That Doeth all These Things."
In this context, "evil" would be the things which causes a person to feel troubled.
To begin with, I think we must first understand the term "good" because God only creates "good". Evil is only a possibility that arises when Good is created. (If God created "up" then "down" is a necessary possibility, but not a certainty.
The creation story says God created light and it was "good". So, how do we interpret that? Rambam understands "good" to mean something that conforms to 'God's will'. When God created the heavens and the Earth there was an element of uncertainty (chaos) to his creation. There was a chance, due to the randomness built into nature, that our world wouldn't have been the way it is now. So when it says the light is "good" it means that it was created just as God wanted it to be, it conformed to his will. If however, the photon for instance had been slightly smaller or heavier, the entire universe wouldn't have been formed as we know it, and it wouldn't have been "good".
Judaism is all about following the mitzvot in the Torah, because man has a free will, and the "knowledge of Good and Evil" and Man can use this intelligence to choose to conform to God's will and do things that are "good" or man can act in a way that doesn't conform to God's will, and that is considered "bad" and creates evil. For example things like murder and stealing are evils brought about by man acting against God's will, and to refrain from them is a "good" action which conforms to God's will.
So there are two ways that evil happens and neither of them are brought about by God. First is through randomness built into nature, as necessary accident that comes along when God is creating "good" things that conform to his will, and the second is by man bringing evil into the world by not acting as God wants us to.
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