The kneejerk response might be: absolutely not to both questions. I understand why some people would say that. But I beg to differ. Not that I think it could happen now or at any other time in the near future – short of the advent of Moshiach. It could not. Nor would I even suggest that it should. As it stands now the mere thought of a government based Halacha conjures up legtimate fears of religious coercion by the vast majority of Israelis. Many fully observant Jews among them. They look at the Charedi community as the prototype for a Halachic state and fear it. But that is not the model - although it would surely be one component of it.
Full time Torah study for all males with no secular education and no army service cannot be a model for any state. A viable Halachic state requires an army. It requires an education whereby all areas of human endeavor are available to be pursued... and are pursued. It requires doctors and dentists. lawyers and accountants; plumbers and carpenters, contractors and construction workers; architects and engineers; teachers and technicians; scientists and farmers... you get the idea. And there is nothing in Halacha that prevents a Jew from becoming a world renowned expert in their feild. I can think of at least three fully observant Israelis who were awarded the Noble Prize (or its equivalent). One for literature. One for economics. And one for math.
A modern Halachic state does not preclude any of those fields. It goes without saying that it requires a religious education, too. Without any of these components (and a great many more that I could not think of at he top of my head), there can be no viable Halachic state
What about secular Jews? Would they be forced to follow Halacha in their personal lives? Would there be consequences to them if they didn't?
The answer is no. Their personal lives would not be affected. There is no Sanhedrin today. No one is equipped to mete out punishments of any kind to non observant Jews. But the government would be run according to Halacha. There would be no public desecration of Shabbos by any government agency that is not related to public health. Suffice it to say, for example, that a hospital is required to violate Shabbos when human life is at stake and must be fully prepared to do so at the drop of a hat if necessary.
On the other hand where life is not at stake Halacha would be observed. For example there would be no Chametz served to patients in a hospital on Pesach unless it were required to save a life.
What about army service in a Halachic state? Yes. A modern Halachic state requires protection. And it requires we do whatever we can to accomplish that. Whether army service should be mandatory or not is an open question. But a standing army is required. Can there be exemptions for Torah study? Yes, but not to be applied to everyone as it is now. How and to whom those exemptions be would applied is an open question, too. But in a state where army service is mandatory, there is certainly room exemptions for divinity students.
Would secular Jews be inconvenienced in a Halachic state? Yes. But not terribly so in my opinion. Israel would not become another Iran. Nor will it be Charedi. It will just be observant of Halacha.
The Charedi model of full time Torah study for all males, no army service and no secular education is not the only model for a Halachic state. There are other models that even Charedim acknowledge are legitimate albeit not L'Chatchila (as their primary choice). But Torah Im Derech Eretz (TIDE) or Torah U’Mada (TuM) are still considered Halachic versions of Judaism even by Charedi standards. The law of the land need not be Charedi.
In other words life in a Halachic state would not in any way be oppressive. Although it might inconvenience secular Jews somewhat, I don’t think their lives would change all that much. They would still have the freedom to not be observant.
These are just some of my quick thoughts about what a Halachic state might look like. However (and this is very important) I do not think it is in any way possible to do this now. If it were attempted o even suggested by the current government… anyone that thinks there is outrage being expressed now… ‘You ain’t seen nothin yet!’