In this article, a rotor aeroelastic model based on a newly developed finite state dynamic wake, coupled with blade finite element analysis, is described. The analysis is intended for application in rotor blade design optimization. A coupled simultaneous system of differential equations combining blade structural dynamics and aerodynamics is established in a formulation well-suited for design sensitivity computation. Each blade is assumed to be an elastic beam undergoing flap bending, lead-lag bending, elastic twist, and axial deflections. Aerodynamic loads are computed from unsteady blade element theory where the rotor three-dimensional unsteady wake is described by a generalized dynamic wake model. Correlation of results obtained from the analysis with flight test data is provided to assess model accuracy.