A rotary hammer includes a spindle 18 which can be rotatably driven by an intermediate shaft 24 by way of a drive device. A tool holder 16 is arranged for rotation with the spindle 18, and for releasably holding a bit or tool for selective rotation and/or reciprocation. A pneumatic hammering arrangement facilitates repeated impacting of the bit or tool for reciprocation within the tool holder (16). A mode change mechanism includes a knob 18 for selectively operating the rotary hammer in any of three modes, identified as a rotary drive only mode, a hammer only mode and a rotary hammer mode.