INTRODUCTION
By nature, man is a social creature. To meet his needs, he has to live in society. As the population of the earth grows, human needs augment. This may lead to crashes of interest. Experience has taught human beings that they can achieve their ends better in a peaceful and cooperative atmosphere. From the two bloody and devastating world wars in the 20th century, humanity learned a great lesson: efforts must be put into promotion of friendly relations and cessation of hostilities. Since then, a new term was introduced to political literature; peaceful coexistence. Islamic perspective on coexistence with different religions can be discussed in detail are as follows.
There is no compulsion in religion of Islam.
Existing peacefully with non-Islamic beliefs is an essential Islamic principle that is clearly stated in many Qur’anic verses, and that has been practiced by Muslims throughout their history.
It is not something that Muslims impose on their religion or something that they have to resort to because of exceptional external circumstances but this requirement is demanded by the nature of this religion
And say, "The truth is from your Lord, so whoever wills - let him believe; and whoever wills - let him disbelieve.[18:29]
It is not, as some might mistakenly think, an isolated verse, nor is it the only verse that states this truth. There is no compulsion in religion because it is a futile attempt to try to force a person to accept a faith
God tells us that no one except Him has control over people’s hearts and minds. Prophets are told that they cannot guide people in the sense of instilling truth in their hearts;
So remind, [O Muhammad]; you are only a reminder. You are not over them a controller.[88:21-2]
Is it you (Prophet) who can force people to be believers? [10;99]
Invitation
The purpose of tolerating non-Muslims and of living peacefully with them, and of treating them nicely, is to present the truth to them in the best of ways so that it becomes easy for them to see and accept it.
Thus the Prophet is told that his primary task is only to convey the message, that he is only a reminder, that he cannot guide whom he loves, that he cannot force people to accept the faith and that he must invite people to the way of God with wisdom and good admonition
But if they are averse, We have not sent you as a warder over them; Yours is only to convey (the Message) [42:48]
Islam: a History of Tolerance
When Pope Benedict XVI made that famous speech at a German university in which he quoted approvingly Emperor Manuel II claim that Muhammad ordered Muslims to spread Islam by the sword, some of the best replies to him came from non-Muslims.
Uri Avnery who describes himself as being a Jewsh tell the Pope that Muslims ruled Greece for many centuries, but never forced any Greek to convert to Islam. In the same way were the Bulgarians, Serbs, Romanians, Hungarians and other European nations treated. He also tells him that when in 1099, the Crusaders conquered Jerusalem and massacred its Muslim and Jewish inhabitants indiscriminately, 400 years into the occupation of Palestine by the Muslims, Christians were still the majority in the country. Throughout this long period, no effort was made to impose Islam on them. There is no evidence whatsoever of any attempt to impose Islam on the Jews. As is well known, under Muslim rule the Jews of Spain enjoyed a bloom the like of which the Jews did not enjoy anywhere else until almost our time. Every honest Jew who knows the history of his people cannot but feel a deep sense of gratitude to Islam, which has protected the Jews for fifty generations, while the Christian world persecuted the Jews and tried many times “by the sword” to get them to abandon their faith.
The story about “spreading the faith by the sword” is an evil legend, one of the myths that grew up in Europe during the great wars against the Muslims
Tolerance of Religions Under Islamic Rule
When Islam becomes the religion of a state it does not compel non-Muslims to accept it. Some Western writers tell us that it was attempts at such compulsion that caused the famous European Wars of Religion that led finally to secularism and the relegating of religion to the private sphere.
Because Islam did not make such an attempt it could tolerate non-Islamic religions, especially Christianity and Judaism and give them more than the rights that are now given them by secular states. That is not to say that they were given the same political rights and opportunities as those given to Muslims. They were not. Such political equality was not possible in a religious state, neither is it possible in secular states. A secular state gives believers in religions like Buddhism, Judaism, Christianity or Islam the opportunity to occupy a political position on condition that they abide by the secular constitution that separates church and state. Some American religious writers complain that the freedom given to religious people is a freedom given them according to the secular definition of religion. But this has to be so. They cannot be given freedom to practice their religion in ways that make them encroach upon the sphere of the secular state. There is thus no difference in this respect between a secular state that gives religions this kind of limited freedom, and a religious
Concluding Remarks:
According to the above discussion, it can be said that it is a wrong perspective that Islam doesn't allow its followers to live peacefully with the non believers. In fact, peace is the base of Islamic society and Prophet (PBUH) showed us by establishing such a society in which everyone was allowed to live its life freely. There is no compulsion in Islam. No one allowed to use force in order to bring someone into the fold of Islam.

Add more references from Muslim society in the era of Holy Prophet PBUH

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