In recent years transition metal ion doped ZnO has been the focus of intense scientific enquiry. ZnO:Co is by far the most studied member of this family. However, despite the many experimental claims for ferromagnetism, a definitive theoretical explanation for long range magnetic interaction has so far been lacking. Here we present a mechanism which describes not only the origin of this previously inexplicable magnetism but also explains the experimental findings to date and in addition, suggests a recipe for tailoring the magnetic properties. We demonstrate that the magnetism originates from a Co^{2+} oxygen vacancy pair with a partially filled level close to the ZnO conduction band minimum. The long range coupling then occurs via conduction electrons at moderate n doping. This however is not sufficient for room temperature ferromagnetism due to the prohibitive concentrations of O vacancies needed. The experimental findings may then be explained by a combination of our proposed mechanism and the formation of blocked superparamagnetic clusters.
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