Where Queen may entertain government or set up Order of Merit (9)
I believe the answer is:
stateroom
'where queen may entertain' is the definition.
(room where the Queen might host guests)
'government or set up order of merit' is the wordplay.
'government' becomes 'state' (state government is a kind of government).
'set up' shows that the letters should be reversed in order.
'order of merit' becomes 'om'.
'or' written backwards gives 'ro'.
'state'+'ro'+'om'='STATEROOM'
(Other definitions for stateroom that I've seen before include "Large private cabin on a ship" , "Passengers's private compartment on ship" , "part of palace" , "Place fit for a 27 [PRINCE]" , "Luxury cabin on a liner" .)