A method for directional control of a drilling system includes generating a set point attitude on an outer loop to establish a path to be followed by the drilling system. The set point attitude may be generated using a surface controller based on inclination and azimuth measurements made at the drilling system and a measured depth of the drilling system. A downhole inclination and azimuth hold system is used on an inner loop to control drilling along the path established by the set point attitude. The inclination and azimuth hold system processes the set point attitude to compute a toolface control input and a dogleg severity control input which are applied to the drilling system to control the drilling system to drill along the established path.