Rav Yaakov Ariel differentiates between civil suits on the one hand and criminal law (mishpat hamelech) and administrative law (where the court is in effect an appellate bureaucracy) on the other hand. He also allows people who are knowledgeable in Halacha and can apply it their decisions to be judges (similarly many observant Jewish lawyers perform a great service by writing contracts and wills that are valid according to both secular law, which many poskim rule has the force of either dina d’malchuta or minhag hamedina in commercial matters, and Halacha.
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