From the Load-Islam main page:
A Unique Tolerance
Islam at the Crossroads
There are degrees to religious tolerance. The lowest degree is that of allowing one's opponent to enjoy the freedom of his faith. Doubtless in such a case, the individuals are allowed to enjoy freedom of faith, but he might not be able to exercise his religious obligations or to abstain from prohibitions according to his faith.
A moderate degree of tolerance is to allow an individual to believe in a faith of his choice. In this case, he is neither compelled to discard his religious obligations nor is he forced to act contrary to his faith. For instance, a Jew believes that working on Saturdays is prohibited in his faith. Forcing him to work on that day is, therefore, not tolerance. Likewise a Christian, who goes to church on Sundays as part of his faith, should not be constrained from attending it.
The highest degree of tolerance is allowing people of other faiths to follow their way, even though some of their practices might conflict with the religion of the majority. It was this degree of tolerance that the Muslims adopted toward their non-Muslim citizens.
Muslims tolerated the religious practices of their minorities by not prohibiting even those practices, which were contrary to the state ideology. Such prohibitions, if Muslims had imposed them on non-Muslims, would not have been considered as fanaticism, for that which is considered lawful in a religion is not necessarily an imposed obligation.
For example, although a Magian may marry his mother or sister, he may also marry any other woman without this being frowned upon; or a Christian, who is permitted to eat pork, may also eat beef or lamb or poultry, just as he may abstain from drinking wine, even though the Gospels permit the consumption of wine. Consequently, had Islam ordered the non-Muslims to abstain from marriage with close relatives, which is prohibited by the shari'ah, or to abstain from wine or pork for the sake of their Muslim brothers, this would not have caused them any religious conflicts, since these practices are not obligatory for them.
Nevertheless, Islam did not make any such demands, nor did it ever intend to take non-Muslims to task on matters lawful in their religion but unlawful in Islam. On the contrary, Islam enjoins upon Muslims to allow non-Muslims to observe any practice, which they believe to be lawful in their religion.
The Muslim Tolerance
There is another aspect of this matter which cannot be found in the edicts of the law, nor can it be enforced by the courts or the government: this is the so-called "spirit of tolerance" which underlies upright attitudes, benevolent dealings, respect for one's neighbors, and all the sincere sentiments of piety, compassion, and courtesy. Such attitude is required in everyday life and cannot be obtained through constitutional legislation or the courts' jurisdiction. The spirit of tolerance is exclusively practiced in Islamic society. It appears in several verses of the Qur'an, which tell of parents who attempted to turn their sons from the unity of God to polytheism: "You bear them company in this life with justice." (Luqman: 15)
Similar too is the call of the Qur'an to righteousness and justice in dealings with the non-Muslims who do not oppose Muslims in their religion: "God forbids you not with regard to those who fight you not for (your) faith nor drive you out of your homes, from dealing kindly and justly with them, for God loves those who are just." (Al-Mumtahanah : 8)
The Qur'an describes the righteous in the following terms: "And they feed, for the love of God, the indigent, the orphan, and the captive." (Al-Insan : 8)
The captives, at the time of this verse's revelation, were polytheists. The Qur'an also explains that there is no harm in incurring expenses on behalf of polytheists who are relatives or neighbors of Muslims: "It is not required of you (O Apostle) to see them on the right path, but God sets on the right path whom He pleases. Whatever good you give benefits you own souls. And you shall only do so seeking the "Face of God." (Al-Baqarah: 272)
Muhammad ibn al-Hasan, Abu Hanifah's colleague and scribe, has reported that the Prophet had sent money to the people of Makkah when they were facing drought. It was to be distributed among the poor, although the Prophet and his companions had undergone a great deal of torture and oppression at the Makkah's hands.
Imams Al-Bukhari, Muslim, and Ahmad related on the authority of 'Asma bint Abi Bakr that she said: "During the covenant with the Quraish, my polytheistic mother came to see me. I asked the Prophet, upon whom be peace, 'O Messenger of Allah, if my mother came to me wishing to see me, should I maintain good relations with her?' He replied, 'Yes you should treat her kindly.
The words of the Qur'an indicate the correct manner of discussion with non-Muslims: "And do not dispute with the people of the book, except with means better (than mere disputation), unless it be with those of them who inflict wrong (and injury). But say: 'we believe in the Revelation, which has come down to us and in that which came down to you. Our God and your God is one." (Al-Ankabut: 46)
This tolerance manifests itself very clearly in the conduct of the Prophet, in his dealings with the people of the book, whether Christians or Jews. The Prophet used to visit them, treat them kindly and with respect, console their sick and deal with them in terms of "live and let live."
Ibn Ishaq in his Sirah (biography of the Prophet) stated: 'When the delegation of Najrani Christians came to the Prophet at Madinah, they entered his mosque in the afternoon to meet him. It was their prayer time, so they began to perform their prayer in the mosque. Some Muslims were about to prevent them from doing so, but the Prophet, upon whom be peace, said, "Let them pray.", So they faced eastward and performed their prayer.'
Based on the preceding incident, Ibn al-Qayyim, a mujtahid scholar, put up a sign in front of the mosque reading "Admission granted to people of the book that the people of the book could perform their prayers in the presence of Muslims was evidently clear to him.