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Is it ever okay for a government to purposely mislead its citizens? is there a place in politics for propaganda? Why or why not?

I would say that there are some times when it may be appropriate for a government to mislead its citizens.  For example, look at the whole Area 51 conspiracy.  If indeed there is something extraterristrial there, it might cause mass hysteria.  Additionally, what if other nations felt it was worth attacking us over, in case there was some alien technology that would prove beneficial in making a weapon or something of the sort? 

Another instance in which I can think this might be appropriate would be with war and terrorism.  Sometimes the best way to combat terrorism is to use deception.  If I don't find out about the location of terrorists near me because the National Security Council feels it's best in the country's best interest not to let the terrorists know that they know they are around, then I'm okay with that.

'Mislead' is an emotionally charged word. It implies bad intention on part of the person who misleads. In that sense of word, it can never be proper for a government to purposely mislead the government.

However, if we consider this issue in a objective way, we can find many situation when keeping some information confidential from citizen will be in their interest. Some obvious examples are about need to keep some information confidential from enemies in war or even terrorists. Even in peace time some information may have to be kept confidential till appropriate time for release to prevent misuse of the information by unscrupulous people for personal gain.

Confidentiality is much different than to "purposely mislead."  Confidentiality still honors the intelligence and humanity of the one kept uninformed.  Purposely misleading someone (or a people group) is dehumanizing and will ultimately undermine trust and destroy followership.  An honorable government must be built on trust and trust is not engendered through lying.  Again, that is not to say that full disclosure is always appropriate, which is different than lying.

Whether they should or they shouldn't, politicians attempt to purposefully mislead the people almost every time they talk to the press. A politician will never tell the simple unvarnished truth. They will always 'spin' the information to make themselves look better and the opposition look worse. Every piece of imformation issued by the government (and the opposition) could be defined as propaganda.

One reason politicians are so often hated is because you can never get a simple staright-forward truthful answer from them. 

It is never, under any circumstances, acceptable for the government to mislead its citizens. Nonetheless, it is not advisable for the government to provide full disclosure for the public on every activity at every time. To do this would be catastrophic for national security. It would also be falling victim to the "either/or" fallacy.

The reason why the United States has a free press is to ensure that government secrecy is limited. The fourth estate provides an appropriate check to the power of the government to limit information.

There definitely is a difference between misleading and simply keeping something secret.  I am a major fan of government openness and hate the self-serving lies -- yes, lies -- that all too often come out of government.  The more benign 'spin' that we are all used to is completely predictable, and so not that dangerous in my opinion.

However, I can imagine situations in which it would be good for government to purposely mislead its citizens -- temporarily!!!  Let's say that a major secret wartime operation is planned that is crucial to our side's chances of survival.  Of course the government would want to keep it secret.  In addition, though, it would be appropriate for the government to lie if asked whether something like that was planned, and possibly even to take the initiative to spread misleading information in order to trick the enemy.

Is this sort of thing dangerous?  You bet!!! It is so easy for a government to be convinced that it's view of things is the right one, and that the end of achieving what it wants justifies the means of lying to the people.  This is why -- in all but the most dire circumstances -- we should opt for more openness so the press and the people can determine for themselves whether the aims of government are truly in the national interest.