Theocracy is the opposite of the separation of Church and Government: it means that the rule in the country is connected to religion.
Pharaoh was the ruler of the country - equivalent to a king, but also he was a priest (the highest priest in the country) and often a God. This means that he took all the administrative and political decisions, but also the religious decisions in the country.
This also meant that the rule of the Pharaoh could not be challenged as it has a divide origin.