Full text article. Also available at https://doi.org/10.4236/ojss.2014.413048This is a methodological paper prepared by senior academicians, researchers and consultants from renowned universities in Tanzania. The paper provides insights as to how best development agents can approach the challenge of capacity needs assessment and development of capacity building programs in the context of the local government structure in Tanzania. The paper is of original nature and is based on author’s accumulated knowledge and practice in conducting capacity assessments and developing capacity building programs in Tanzania. The paper describes what can be considered to be best practices in conducting participatory capacity assessment through consultative processes which involves most of the key actors who would be engaged in implementing proposed interventions. The paper puts forward an analytical model for capacity assessment and program development in the Tanzanian context. The main features of the model can be summarized as participatory capacity assessment, strategic capacity building program development and complementarity through synergy building with like-minded stakeholders. The operational modality for utilizing the model in developing capacity building programs which among other components has monitoring and evaluation aspects is included. It is recommended that practitioners and development agents should test the model in their working environments to realize its potential benefits including program ownership by stakeholders.