Mirza Khalil, mostly known as Khalilullah Ali I was born in Anjudan. It is related that Imam Nuruddin Ali had nominated him as his successor in presence of the Indian and Syrian Ismaili pilgrims at Anjudan.
Khalilullah Ali is said to have examined the economical conditions of the poor Ismailis residing in Iran, India, Syria, Badakhshan and Central Asia, and sent necessary aids through his family members. He also reviewed the then system of Ismaili mission of different regions, and caused vital changes specifically in the religious practices in India.
Between 947/1540 and 960/1553, the Safavid Shah Tahmasp waged four expeditions in the Caucasus, and brought a large number of Georgian, Circassian and Armenian prisoners in Iran, including women and slaves. There had been a serious struggle in acquiring power in the principal posts between the Iranians and the Turks, known as Kizilbash. The prisoners of Caucasus hence had been introduced as ghulaman'i khassa'yi sharifa (the slave of the royal household), and were given military training as the "third force" of the empire. Thus, the introduction of the Tajik element changed the character of the Safavid society. They proved very loyal to the empire until the death of Shah Tahmasp. When he fell ill in 972/1574 for about two months, there was a recrudescence of dissension among the Kizilbash chiefs. The Tajik women in the royal harem also jumped into the political intrigue to advance the claims of their respective sons to the succession. The nine sons of Shah Tahmasp were familiar in the different military units, and each unit came up to support the respective sons of Shah Tahmasp for the next ruler. Muhammad Khudabanda, the elder son was ill. The second son Ismail was in prison for twenty years since 1556. The other seven sons belonged to Circassian or Georgian mothers, each was expecting the throne for their own sons. Shah Tahmasp died in 984/1576. The Georgian made an unsuccessful attempt to place Hyder on the throne, and his supporters raided the capital city, but failed and Hyder was killed. Finally, about thirty thousand Kizilbash thronged at the prison, and released Ismail and crowned him at Qazwin as Shah Ismail II on August 22, 1576 at the age of 40 years.
Shah Ismail II first of all executed and blinded those princes, who were responsible for his long punishment, including his five brothers. He abandoned the doctrines of Twelver and banned the practice of tabarra, reviling Abu Bakr and Umar. The Kizilbash generals began to realize that Shah Ismail II was not a sort of ruler they had expected. They got him killed with the help of his sister, Pari Khan Khanum by poison in 985/1577. The Kizilbash crowned Muhammad Khudabanda, the elder brother of Shah Ismail II. He was one among those persons, who had been ordered by Shah Ismail II for execution, but was survived owing to some sorts of delay. He had been in Herat during the death of Shah Ismail II, and reached at Qazwin from Shiraz. It implied that the Safavid throne remained without a king for three months. Finally, Muhammad Khudabanda assumed power in 985/1578. He was a mild, and his eye-sight was so weak that he was virtually blind. He took no interest in state affairs, and remained in composing poems under the pen-name of Fahmi. His wife Mahd-i Ulya however governed the state by a council of the Kizilbash officers, whom she ignored, and replaced by the Iranian officers. She had planned to make her own son to succeed her husband, and conspired to remove the capable son of Muhammad Khudabanda, called Abbas being born to other wife. Abbas was in Herat and thus, he escaped from the conspiracy.
The Ottoman sultan Murad III (1574-1595) invaded Azerbaijan and Georgia with one lac soldiers in 986/1578. The Safavid forces suffered a long series of defeat. On the other side, the dispute between Mahd-i Ulya and Kizilbash officers had shaken the foundation of the empire. She had been killed by Kizilbash, and the whole power came with the military. The army of Ustajlu-Shamlu in Khorasan, the Afshars in Afghanistan, and the Kizilbash in Qazwin and northern region were divided among themselves. They began to fight one another and violated the law and order in supporting the different sons of Muhammad Khudabanda. The notable princes being supported by the above three military groups were Hamza, Abu Talib and Abbas. Hamza was killed in 1586, therefore, the Kizilbash turned their support to Abu Talib. Under such fratricidal disputes for the throne, Shah Muhammad Khudabanda had been forced to abandon the throne in favour of Abbas in 996/1588, who was about 17 years old. Murshid Quli Khan, the leader of Ustajlu-Shamlu in Khorasan supported him, who had been invested the title of vakil of the supreme diwan. The new king Shah Abbas negotiated a peace treaty with the Ottoman sultan in 1589, and also began to repel the Uzbek inroads from eastern side.
The internal dissensions in the Safavid armies and disorders in Iran had sucked away the peace. The bulk of the people is said to have been perished by a great drought which afflicted the country, resulting spread of disease. The theft and robbery had terrorized the highways so frequently that the travellers feared to make journey inside Iran.
In India, after the death of the Mughal emperor Humayun in 963/1556, his son Akbar (1556-1605) succeeded at the age of 13 years, therefore, his teacher Bahram Khan administered the state affairs. It was Bahram Khan to inflict a defeat to the Suri dynasty at Panipat, and saved the throne of Delhi. He was a Shia, and thus the Sunni ulema aroused the emperor to retire him. Akbar was 18 years at that time, and took the power from Bahram Khan, and then conquered Gujrat, Bengal, Ahmadnagar, Deccan, Bihar, Kashmir and northern regions, where he posted his generals, and put his empire on a sound footing, making coalitions with regional Hindu elites. Akbar held a liberal policy in religion, and invented a new religious cult, known as Din-i Illahi or Mazhab-i Haq, which combined elements of Islam, Hinduism and Zoroastrianism, which also perished with his death.
Khalilullah Ali is said to have held a conference of the dais and missionaries of different regions in Anjudan to review the mission activities. He made few vital changes in the system in Syria and India, and issued necessary orders abreast of time in various regions.
Khalilullah Ali seems to have organised a best system of his contacts with the Ismailis of Iran, Syria, Badakhshan and India. He had employed in this context a certain Zayn al-Abidin bin Hussain bin Khushnam Angawani (d. 961/1554), who understood many languages. He had been assigned to write letters, bearing official seal to the Ismaili communities as per the instructions of the Imam.
The Nusairi zealots had raided and pillaged the Ismaili villages in Syria in 1569. They captured the strongholds of Masiyaf and Qadmus, which was informed to the Imam by the Syrian pilgrims. It is related that Khalilullah Ali dispatched an embassy to the Ottoman authority in Latakia, and as a result, the Nusairis withdrew from Masiyaf and Qadmus after three years.
The Iranian Ismailis mostly professed in agriculture. Later on, few among them are reported to have ventured into the local trade, and became leading merchants in Kirman. Their rapid progress can be judged from the records that the Ismaili merchants of Kirman dominated the trade at port Hormuz around 1580. They mostly carried their trade with the Portuguese, and then with the English East India Company in 1610. There are certain indications that the Khoja Ismaili traders also started their commercial activities between port Hormuz and Kutchh.