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The bottom line is, since God created all things, evil was the result of His giving man free will/choice. This particular passage shows that God is talking about Koresh (Cyrus), while at the same time, showing us that God is in charge because He is the ONLY God.
So, to begin with, we believe you're inadvertantly taking the verse in question out of context. In order to see the "whole picture" you must direct your attention to the previous verses which show that this Word of God is about Koresh (Cyrus) whom God is planning to use to rebuild Jerusalem. The text is elaborating the power of God and his ability to control who is in power. Note that Isaiah 45:1 says: "Thus says Adonai to Koresh, his anointed, whose right hand he has grasped, so that he subdues nations before him and strips kings of their robes, so that doors open in front of him and no gates are barred:"
The passage is saying, "I will use Cyrus, I will subdue nations, and I will strip kings of their armor", so that when you get to verses 5-7, you realize God is making the ultimate declaration that there is no other God – that He created even the opposites (light – darkness; peace – evil). In other words, all things are in His control.
It is important to note that the translation of verse 7 varies according to Bible version:
The NIV says, "I form the light and create darkness, I bring prosperity and create disaster; I, the LORD, do all these things." (Note it does not say "peace – evil".)
The New American Standard Bible says: "The One forming light and creating darkness, causing well-being and creating calamity; I am the LORD who does all these." (Note it does not say "peace – evil".)
And the English Standard Version: "I form light and create darkness, I make well-being and create calamity, I am the LORD, who does all these things."
Stern's Complete Jewish Bible says: "I form light, I create darkness; I make well-being, I create woe; I Adonai do all these things."
The KJV has actually taken the text beyond its intent – you highlighted "create darkness" and "create evil" and extrapolated that it means "diseases, plagues and the work of demons". Though God can (and has) created diseases and plagues and can certainly control the work of demons, I don’t believe it is completely accurate to extend this verse to that conclusion. This verse is simply a part of a dialogue where God is saying he is all powerful, there is no other, and he will use Cyrus to rebuild Jerusalem.
Furthermore:
(1) "I form the light and create darkness" is speaking to the universe – the creation. How does He form light? Through the sun and stars. How does He form darkness? By removing the light that shines upon the earth as the earth rotates around the sun. The other context of light and darkness, is that of life or death, good and bad. God is ONLY LIGHT in the spiritual context. Satan and rebellion is ONLY DARKNESS in the spiritual context. God does not create rebellion. Why would He create something to intentionally rebel against His authority? This makes absolutely no sense. God created the heavenly hosts with a will that gives them an option to rebel. Why? In His perfectness, God doesn’t impose His love upon the creation, but only wants to be loved back freely.
(2) "Evil" in this passage is an incorrect translation, it should be translated "calamity, war or disaster, or woe". Look at the context in Isaiah 45:7. "I make peace and create __________"??? Calamity, war or disaster.
Why would a perfect God create calamity and war? Isn’t this evil? No, it is judgment upon sin and rebellion. The heavenly hosts and man rebelled against God and placed a curse on the creation in their rebellion. God gives His creation free will – to choose to follow and obey Him or rebel against Him. Therefore, He does not impose His love on the creation, but offers it freely. The creation is not only at war with the Creator but WITH ITSELF. This is why men kill each other. Every one who was murdered in innocence will be restored one day when God comes to judge the earth. He will remove the curse, judge all of those that rebelled and repay them for shedding innocent blood, and reward those that believed in, and obeyed Him.
How can those in the creation attempt to set them selves above the One who Created them - except by evil? Evil is that which rebels against God and tries to set itself above the Creator – end of story.
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