Several Islamic organizations have experience major changes in their theological frames and political identities away from fundamentalist and revivalist theological orientation to one that embraces a progressive Islamic theology that synthesizes these norms with classical Islamic teachings. What are the factors that explain these theological changes? What are the causal mechanisms that help to promote them? Using the moral authority leadership theory, I argue that Islamic groups would be able to change their theological frames and political identities if the changes are promoted by religious leaders with 'moral authority' status, who are using both ideational and instrumental strategies to reconstruct the theological frames of their organizations. In addition to moral authority leadership, intermediary variables that also affect the likelihood of a theological change within Islamic groups are the institutional culture of the organization - the degree of tolerance for non-Islamic theological teachings - and the relationship between the Islamic group and the state. This study is a comparative historical analysis of two Indonesian Islamic groups: the Nahdlatul Ulama (NU) and the Muhammadiyah. It finds that the NU was able to successfully change its theological positions due to the presence of a charismatic moral authority leader, the tolerant institutional culture within the organization, and the ability of the organization to ally with the Suharto regime, allowing the reform to be institutionalized with little intervention from the regime. On the other hand, theological reform within the Muhammadiyah was not successful due to the lack of a leader with moral authority status who could have led the reforms within the organization, as well as to the dominance of a revivalist institutional culture that does not tolerate any challenges to their interpretation of Islamic theology. The analysis makes theoretical contributions on the role of religious leadership within Islamic movements and the likelihood of Islamic groups to adopt liberal political norms such as democracy, religion-state separation, and tolerance toward religious minorities. It identifies the mechanisms in which theological change within Islamic group become possible.