The origin of the name "Idaho" lies in the politics of the early territories.
The state of Colorado was almost named "Idaho" after a word coined by a local mining lobbyist, George M. Willing. Mr. Willing dreamed up the name "Idaho" and urged Congress to adopt it for the new territory of the Pikes Peak region.
Willing told questioners Idaho meant "Gem of the Mountains" in Indian language. In 1860, Indian words were widely used and by the end of 1860 the word Idaho had strong support in Congress.
When the U.S. Senate considered a bill to create an Idaho territory from the Jefferson realm, they discovered that Idaho was not of Indian derivation but was instead an invented word.
Meanwhile, the word "Idaho" spread to the Columbia River in the form of a steamboat. By 1862, the Clearwater and Salmon River discoveries were known as the "Idaho Mines."
In 1863, Idaho once again surfaced in Congress as a motion to change the Territory of Montana to Idaho. After much debate the bill was amended to fix the boundaries of the territory to include all of present day Idaho, Montana and nearly all of Wyoming.
President Lincoln signed the bill into law in 1863. Idaho became the 43rd state on July 3, 1890.
-From The Idaho Almanac, 1977.