Novatek and the U.S. Department of Energy's Federal Energy Technology Center have engaged in a cooperative effort to develop an integrated, steerable drilling system, which includes a mud-actuated hammer as a key element. The overall goal of this system is to provide significant cost reduction and technical advantage over current drilling practice, particularly in deep, medium-to-hard rock formations. Following preliminary evaluation of several advanced drilling concepts, a system concept has been developed which offers potential improvements in drilling rate, directional control, formation evaluation, and wellbore stability. This paper describes several key subsystems of the integrated drilling system concept in some detail, including an advanced telemetry system, a steerable drilling head that offers advanced sensing capabilities, and a means of lining the wellbore while drilling. Progress on prototype development is reported, and key technological developments and hurdles are described.