Separation of church and state prevails over the Free Exercise Clause in today's Supreme Court case, Locke v. Davey. And really, federalism won out over nationalizing rights, because this was a case where a state, in its own constitutional law, had embraced a stronger vision of separation of church and state than is required by the Establishment Clause of the U.S. Constitution. That is, the courts of the state of Washington had interpreted the state law version of the Establishment Clause to mean something more like what a minority of the U.S. Supreme Court would say the Establishment Clause means. Clearly, the state court can interpret the state constitution independently, but the problem here is that there's another federal right, the Free Exercise Clause, which could have been used to deprive the state of the ability to adhere to a more strongly separationist position than the federal Constitution requires.

In the case, the state denied a scholarship to a college student because he chose to study to become a minister.

Chief Justice Rehnquist looked to the history of separation of church and state. Even though he hasn't voted with the Justices who read that history to mean that the Establishment Clause requires excluding religion from government benefits, he read that history to justify the state's vigorous approach to separation. The state can discriminate against religion in spending its money on scholarships, because it wasn't discriminating out of a hostility toward religion but out of a respectable belief in the importance of separating church and state.

[W]e find neither in the history or text of ... the Washington Constitution, nor in the operation of the Promise Scholarship Program, anything that suggests animus towards religion. Given the historic and substantial state interest at issue, we therefore cannot conclude that the denial of funding for vocational religious instruction alone is inherently constitutionally suspect.

It is possible to interpret the Free Exercise Clause and the Establishment Clause so that everything that is permitted is also required. To do that removes all legislative options and denies the state room to express its own values about the relationship between government and religion. The Court rejected that option. Though strong proponents of Free Exercise will be unhappy with today's decision, it should not be seen merely as a victory for church-state separationists. It is also a victory for federalism, which leaves more room for varying definitions of rights within state law.