Quasi-steady flows of interstellar gas in a spiral gravitational field are followed for the purpose of investigating galactic shocks and the resultant processes of the formation of stars and interstellar clouds. We model the interstellar medium with two stable phases in which thermal balance is maintained through heating by low-energy cosmic rays. The problem, including transitions between the two phases, is given a general formulation but is solved in an approximation which ignores the difference in fluid velocities of the two phases. We also assume that the cosmic-ray flux is uniform in circles about the center of the Galaxy and that the relative abundances of the chemical elements are “normal.” For a spiral gravitational field with strength equal to 5 percent that of the axisymmetric field at 10 kpc from the galactic center, the density ratio at maximum and minimum compressions is 9:1 for the intercloud medium while it is 40:1 for the gas in a typical cloud. During the decompression phase of the flow, a small percentage of the mass of the clouds evaporates to become intercloud material, but this small amount is recovered in the shock. As a by-product of phase transitions, the properties of the clouds in the regions between spiral arms are such as to make their detection in 21-cm absorption very difficult. In the absence of the cloud phase, we determine the thickness of the shock layer in the intercloud medium to be typically 50 pc. An interstellar cloud immersed as a test particle in the intercloud medium experiences a dynamic rather than a quasi-static compression as it passes through the shock layer. The critical mass for the gravitational collapse of a cloud is reduced by a large factor because of the compression in the shock.