Separation of church and state

Ali has been thinking about the role of religion in the state and whether or not democracy and Islam are compatible - a question that's being asked a lot these days. He complains that the question isn't really valid.

To begin with I must say I have a problem with the question itself and to clarify this problem in short, I'll instead ask this question: Is Christianity compatible with democracy? Or is Judaism compatible with democracy?
Before anyone starts yelling at me I would like to provide my answers. I think that one can answer both questions with "yes" and no.
"Yes" if we consider western societies as Christian societies and "no" if that means that there's no need for separation of the church from the state.

What Ali is arguing is that democracy is incompatible with the rule of one religion. In order to have a democracy that respects the rights of all people, all religions (including no religion) must be accommodated. If one religion sets the rules of a society, inevitably tension will arise between that religion and the rights of those who do not practice it.

What I'm trying to say is that no religion in its present form is compatible with democracy and both democracy and religion can only co-exist if that religion is marginalized. In my mind all present religions, if you take them from the mouths of their advocators, being Imams, priests or whatever they are called in other religions and look at them with a modern rational mind, are (pardon me) so full of sh*t! (Note that I'm not talking about the core of those beliefs but how they're presented to us now).
There's no way one can develop a modern democracy directly from any of those religions simply because all of them declare that they have the absolute truth.

Here I think Ali is struggling to express his thoughts in English. I don't believe what he means is that religion is incompatible with democracy in the sense that the two cannot coexist. Rather he means they cannot both form the system of government at the same time. Either you have a democracy, in which religion plays a role in the citizen's lives but does not define the government's system of laws, or you have a religious form of government (shariah, for example) in which the religion's "rules" are the government's system of laws.

That is not to say that the precepts of a religion cannot influence the formation of laws in a democracy. They most certainly can and do. And they can be adjusted over time by the influence of other religions. However, the laws cannot be identical to the precepts of any religion where those precepts are inimical to the rights of those who are not followers of that religion.

Religious people have every right to argue for the inclusion of the precepts of their religion into the laws of the country just as those who have no religion (or simply disagree) may argue against their inclusion. The precepts of a religion will naturally create tension within the system of laws as the followers of that religion attempt to shape the laws to more closely resemble their beliefs. The standard of acceptance into law must be that the rights of all must be respected and preserved while the will of the majority determines the shape of the system of laws.

UPDATE: Changed Mohammed to Ali. I obviously wasn't paying attention when I read his post. My apologies.

UDPATE 2: Some interesting points here including some history that informs today.