According to Meghnad Desai on Open Democracy, one of the excellent links there on the right, this is the way to go:
We need to say loudly that while Islam has one book and one God, it also has a rich diversity of manifestations around the world. We need to point out that Muslims around the world live in harmony with other people and share the common concerns about leading a happy prosperous life, caring for their children’s future and ensuring a safe and healthy old age for their elders.
Faith is a private concern; where it enters the public realm and creates dispute, the resulting problems are resolved more by negotiations and diplomacy around matters of disagreement than by violence or threats of violence.
The way to defeat terrorism conducted in the name of religious belief is to distinguish between religion and ideology. Then you fight the terrorist while leaving the devout alone to pursue her or his faith.
Read the article itself to see how he reaches this conclusion.
One thing I noticed at SBHS today, where I did some work, is that the Islamic Students Society is thriving. I guess a point is that as so many rhetorical bombs are thrown at Muslims in the media and so on the more they feel constrained to identify and stand up for themselves. Human nature, when you come to think about it.