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Thomas Jefferson was an antifederalist. This means that he was generally in favor of the states having more power than the federal government. That is what he is saying in this quote.
Jefferson is saying that the state governments should have the power over everything that is domestic policy -- things that do not involve foreign governments. For example, Jefferson would have thought that states should control taxes and things like that. He thought that this would keep the national government from imposing bad policies on the states the way that England had imposed bad policies on the colonies.
But he is also saying that the national (what he calls the "general") government needs to take care of foreign policy. The states should not be able to form separate alliances with other countries, for example.
So he is saying that the state governments should handle domestic policy and the national government should handle foreign policy.
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