I'll admit it. I have a lot of prejudices against Muslims. Much of it is my perception of how they feel about and treat women and gays. Their perception of Israel's lack of right to exist doesn't give me warm fuzzies either. However, I know that doesn't describe all Muslims, and I've read many stories of Muslims engaging with other religious groups in the name of tolerance and understanding. There's a lot to be said for America's melting pot. Quite frankly, we all have a lot to learn about peace and understanding each other.
However, marginalizing a population does the opposite. If we treat Muslims like "other" then improvement in relations only deteriorates and yes, it can be worse than it is. The protest against the cultural center near Ground Zero are once again giving our enemies "I told you so" moments.
I could get into the stupid things that have been said in the name of "protecting America", but that's all been said before. But I would think we would all agree that protecting America and protecting what we stand for, such as religious freedom, would be the best way to "win" any war on terror. Lowering ourselves to their level of hate, misinformation, xenophobia, and lack of freedom would give them our destruction on a plate without any need for violence on their part.