Teachers face a dilemma in setting limits and establishing boundaries with excluded students, who often exhibit extremely disruptive behavior that cannot be ignored or condoned. Since limit-setting through threats, sanctions, punishment, or expulsion simply reinforces the cycle of exclusion, the alternative approach presented here is to treat the breaching of boundaries as a developmental rather than a moral issue. Benevolent authority and empathic limit-setting, which lie at the core of this method, involve understanding and tending to the needs of the young person while at the same time clearly defining the necessary boundaries and positively reinforcing students for maintaining them. The transition from power struggle to empathic limit-setting entails both a turning point in which problematic incidents are essentially reframed, and emotional awareness on the part of teachers of their own inner turmoil in response to such situations. To the extent that teachers can exercise their authority without punishing or humiliating their students, they provide a holding environment in which excluded students feel stable and secure enough to develop their own internal authority. This paper is based on action research carried out with teachers in an MEd program in inclusive education at the Oranim Academic College of Education in Israel.