Islam came at a time when slavery was deeply entrenched in the society, so Islam worked towards the gradual elimination of slavery.

• Islam encouraged the emanciplating of slaves; The Qur'an does so in many places:

  4:92, 5:89, 58:3, 90:13, 24:33, 9:60, 2:177, 2:221, 4:25, 4:36.

  The Prophet said:

  "A person who frees a Muslim slave, Allah will deliver every one of his limbs from the fire of Hell in return for each of the limbs of the slave (Sahîh Bukhârî, and Sahîh Muslim)

  Shaykh Abu Bakr Al-Jazâ'iry writes:

  Islam orders making an agreement to facilitate a slave in buying back his freedom if he requests such an agreement, and it encourages helping him in that with shares or wealth. Allah the Almighty said:
  And such of your slaves as seek a writing (of emancipation) give them such writing, if you find that there is good and honesty in them. And give them something (yourselves) out of the wealth of Allah which He has bestowed upon you. (Qur'an 24:33)
  (Al-Jaza'iry, Minhaj Al-Muslim, vol. 2, p.551)

  The Prophet said: "If any of you have a slave girl, whom he gives good education and excellent training, and then he emancipates her and marries her, he shall have a two-fold reward. " (Sahîh Bukhârî)
• Islam eliminated and restricted the sources of slavery, prohibiting the enslavement of free people, the Prophet said:

  The Prophet said, "Allah says, 'I will be against three persons on the Day of Resurrection: [...] One who sells a free person (as a slave) and eats the price (Sahîh Bukhari)
  "There are three people whose prayers are not accepted. And one of these three is a man who enslaves a free person (Rajulun iitabada muharraran)" (Sunan Abî Dawûd)

• Islam obligated freeing slaves in many circumstances as expiation. Expiation for breaking an oath is freeing a slave (2:221), unintentionally causing a Muslim's death is freeing a slave (4:221), expiation for Zihâr is freeing a slave (4:221), breaking one's fast in ramadan is freeing a slave (Sahîh Muslim), etc.
• Islam elevated the status of slaves and promoted universal human equality; the Prophet said:

  "Yield obedience to my succesors, even if he is a black ethiopian slave" (Mishkat al-Masaabih, At-Tabreezee)
  "No one should say, "my slave" as all of you are slaves of Allah." (Bukhari, Muslim, An-Nasaa'ee and Ibn Hibban)

• Islam prohibited the poor treatment of slaves; the Prophet said:

  "Whoever strikes his slave or beats him, then his expiation is to free him." (Sahîh Muslim)
  They are your brothers; give them to eat what you eat; give them to wear what you wear. (Sunan At-Tirmidhi)
  "He who treats his slave badly will not enter Paradise". (Musnad Ahmad)
  "You are to honor them and to treat them like your children, and feed them from what you eat" (Musnad Ahmad)

So the claim that Islam simply allowed slavery is not true at all. Islam was actually instrumental in the gradual elimination of slavery for the reasons listed above. Muhammad (S) bought freedom of 63 former slaves, A’isha (RA) 67, Abbas (RA) 70, Abdullah ibn Umar (RA) 1000 and Abdur Rahman ibn Awf 30,000.

Islam did the best thing possible in working towards the removal of slavery and the elimination of any associated injustices. The fantasy of someone simply snapping their fingers and declaring the immediate abolishment of slavery in the 7th century is a nice idea, but unfortunately unrealistic and impossible. Slavery was deeply entrenched in the society and consequently could not be eliminated immediately. Islam took several steps to eliminate the injustices of slavery and drive humanity in the direction of its gradual elimination.

As for relations with female slaves, then again it is forbidden to abuse them whether physically or sexually, in the case of rape. Islam commands just, kind and compassionate treatment. The expiation for mistreating one's slave is to set them free and in the event of abuse the state may implement a ta'zîr (discretionary) punishment on the perpetrator.

From Shaykh Abdullah Al-Faqîh's fatwa on IslamWeb:

From this factual information it should be clear that slavery was to be eliminated in Islam. It is our view that when the Islaamic Shariah is practiced faithfully slavery will eventually be eliminated; we might add, so will all other acts of man's inhumanity to man. (SOURCE)

From Dr. Habib Siddiqui:

The ancient world was deeply entrenched into slavery, and the Arab society in Muhammad’s (S) time was no exception. The pagan aristocracy in Makkah, Jewish landowners and merchants in Madinah and many wealthy Christian Arabs were slave owners.[17] Most of the early believers in Muhammad’s (S) message of pure monotheism, on the other hand, were slaves, who were brutally tortured for their faith by their non-Muslim slavers. It became, thus, incumbent upon the Prophet (S) and his Companions (notably Abu Bakr and Uthman – may Allah be pleased with them) to free those slaves. Muhammad (S) bought freedom of 63 former slaves, A’isha (RA) 67, Abbas (RA) 70, Abdullah ibn Umar (RA) 1000 and Abdur Rahman ibn Awf 30,000.[18] It was no wonder that some of the best-known Muslims and soldiers in the defense of Islam were these former slaves and their children.[19]

The Qur'an unequivocally makes it clear that no man, irrespective of his status (including a prophet), can enslave any other human being: "It is not (possible) for any human being unto whom Allah had given him the Scripture and wisdom and 'Nabuwah' (Prophethood) that he should afterwards have said unto mankind: Be slaves of me instead of Allah …" [3:79]

Thus, Islam’s credit lies in being the only major religion to curtailing slavery and encouraging emancipation of slaves. (See the Qur’an for many such references, e.g., 4:92, 5:89, 58:3, 90:13, 24:33, 9:60, 2:177, 2:221, 4:25, 4:36.) Following the dictates of the Qur’an, personal and public wealth from zakat fund and the Baitul-Mal was used for manumitting slaves.20 Here are some relevant Traditions (ahadith) encouraging emancipation of slaves, Muslims and non-Muslims alike:

"A person who frees a Muslim slave, Allah will deliver every one of his limbs from the fire of Hell in return for each of the limbs of the slave, even his private organs for the sake of the freed slave's organs." - Muhammad (S) [Bukhari and Muslim: Abu Hurayrah (RA)]

“The atonement for beating or slapping a slave (Muslim or non-Muslim) on the face, for no fault of his, is that he should be set free.” - Muhammad (S) [Muslim: Ibn Umar (RA)]

"Give food to the hungry, pay a visit to the sick and release (set free) the one in captivity (by paying his ransom)." - Muhammad (S) [Bukhari: Abu Musa Al-Ash'ari (RA)]

“Allah the Most High said, I will be the opponent of three persons on the Day of Resurrection. They are the one who makes a covenant in My name and then prove treacherous. Or the one who sells a free person (Muslim or non-Muslim) as a slave and appropriates his price for himself. And the one who hires a laborer and having taken full work from him, fails to pay him his wages." - Muhammad (S) [Hadith Qudsi, Bukhari: Abu Hurayrah (RA)]

"There are three people whose prayers are not accepted. And one of these three is a man who enslaves a free person (Rajulun iitabada muharraran)." – Muhammad (S) [Abu Dawud]

"No son can repay his father unless he finds him as a slave and purchases him and sets him free.” – Muhammad (S) [Muslim: Abu Hurayrah (RA)]

As hinted earlier, many of the companions of the Prophet Muhammad (S) were freed slaves who went on to become great leaders of the Islamic community. Bilal the Abyssinian became the first caller to Islam [note: the position of mu’addhin is next to the imam]. Ammar ibn Yathir was from Yemen, Salman al-Farsi was from Persia, Suhayb al-Rumi was from Byzantium. Many of the rulers in Muslim territories were freed slaves and their descendants.
__________________
[17]A study of the lives of many former slaves who became the Companions of the Prophet (S) is sufficient to prove this. For instance, Salman al-Farisi’s (RA) slave master was a wealthy Jew from Banu Qurayza. (See also Maulana Rumi’s masterpiece - Mathnabi.) [back]
[18]Human Rights in Islam by Abul ‘Ala Mawdudi. [back]
[19]Read this author’s The Book of Devotional Stories (in print) for stories of some of these early Muslims. [back]
[20]See Fethullah Gulen’s article: How is it that Islam, a religion inspired by God for the good of humanity, allows slavery? - Islam Herald.

Malise Ruthven writes:

Restrictions were placed on enslavement. It was forbidden to enslave free members of Islamic society, including dhimmis (nonMuslims) residing in dar al-Islam.

Marjorie Kelly writes in Islam: The Religious and Political Life of a World Community:

Because of socioeconomic considerations, however, slavery was not abolished.

John L. Esposito writes in Islam and Politics:

Slavery had long existed among the Arabs. Although the Quran commanded the just and humane treatment of slaves ( 4:40, 16:73) and regarded their emancipation as a meritorious act, the system of slavery was adopted in modified form. Only captives in battle could be taken as slaves. Neither Muslims nor Jews and Christians could be enslaved in early Islam.

Kenneth W. Morgan writes in Islam- The Straight Path: Islam Interpreted by Muslims

Slavery was customary at the time that Islam was revealed, but Islam prepared the grounds for its elimination. It encourages the emancipation of slaves by giving them the possibility of purchasing their freedom, it urges that part of zakat be given to slaves to help them free themselves, and it offers the possibility of atonement for certain sins, such as having sexual intercourse during fasting days, by releasing slaves.

Edward Blyden, on of the most important Pan-Africanist thinkers of the 19th century, points out that Islam is what saved much of Africa from slavery:

The introduction of Islam into Central and West Africa has been the most important, if not the sole, preservative against the desolations of the slave trade. Islam furnished a protection to the tribes who embraced it by effectively binding them together in one strong fraternity and enabling them by their united efforts to baffle the attempts of powerful pagan slave hunters. (Christianity, Islam and the Negro Race, p. 215)

At the end of the 18th century, Mouradgea d'Ohsson (a main source of information for the Western writers on the Ottoman empire) declared:

"There is perhaps no nation where the captives, the slaves, the very toilers in the galleys are better provided for or treated with more kindness than among the Muhammedans." (As quoted in The Encyclopaedia of Islam, vol.I, p. 35.)

Napoleon Bonaparte is recorded as saying about the condition of slaves in Muslim countries:

"The slave inherits his master's property and marries his daughter. The majority of the Pashas had been slaves. Many of the grand viziers, all the Mamelukes, Ali Ben Mourad Beg, had been slaves. They began their lives by performing the most menial services in the houses of their masters and were subsequently raised in status for their merit or by favour. In the West, on the contrary, the slave has always been below the position of the domestic servants; he occupies the lowest rug. The Romans emancipated their slaves, but the emancipated were never considered as equal to the free-born. The ideas of the East and West are so different that it took a long time to make the Egyptians understand that all the army was not composed of slaves belonging to the Sultan al-Kabir." (Cherfils, Bonaparte et l'Islam (Paris, 1914))

Annemarie Schimmel writes:

"The entire history of Islam proves that slaves could occupy any office, and many former military slaves, usually recruited from among the Central Asian Turks, became military leaders and often even rulers as in eastern Iran, India (the Slave Dynasty of Delhi), and medieval Egypt (the Mamluks). “ (Islam: An Introduction", p. 67)