In the complacent mainstream of western societies, the politics of identity have often been seen as the preoccupation of a self-serving race relations industry. No longer.

In the aftermath of the London suicide bombings we must regard identity as one of the defining problems of our time. Never before has the question been so starkly posed: can people of different backgrounds and beliefs live alongside each other in a multicultural society?

Seen in longer perspective, the new centrality of identity is not surprising. Every age of globalisation brings migration of people and ideas and in doing so provokes multiple crises of identity and belonging. In the 19th century great waves of European migrants set sail for the new world and the colonies. The culture shock sparked a multitude of responses – from the modernisers of Egypt and Turkey to the anglicised babus of British India and the millenarian Christians of China. Some were benign, some terrible in consequence.

What is different this time is that the crisis of identity is taking place within the western world, largely because the flow of people has been reversed. This is the product of mass migration enabled by globalisation but driven by war, persecution and poverty. Religion and secular society, tradition and modernity, are colliding on the streets of Leeds, Marseille, Frankfurt and Chicago. Often the tension is laid bare only in the second or third generations, torn between two ways of life, strangers in both lands.

Each person faces individually the age-old dilemma of how far to assimilate and how far to preserve his or her own heritage. But the choices are shaped by their own communities and by society at large. The US binds ethnic communities to hyphenated identities, with ethnic trimmings bolted on to a dominant American Dream open to all. France attempts to force assimilation by law. Germany has left ethnic communities alone. Britain tries to build a multicultural society without a central dominant core. Nowhere has the question been fully resolved.

We do know the answer must lie in recognising and celebrating multiple identities. A person can be 100 per cent British, while being a Muslim of Pakistani origin and, for that matter, a Londoner and an Arsenal soccer club fan.

But only if the definitions of national and religious identity are expansive enough. And there has to be functional distinction between them. Ethnic and religious identity may define values, but citizenship must define attitudes to law and political process.

To make this possible, majority communities must extend respect and opportunity, while minorities must build identities that are rooted in their own experiences in the west. This is often frustrated by the practice – common among all south Asians – of importing brides, grooms and priests from abroad, rather than finding them within their own communities.

At the same time nations must foster a stronger and more active, participatory sense of citizenship. The death of distance, brought about by the internet and satellite television, threatens to detach people from their geographic space, reforming them into transnational communities.

The mistake integrationists often make is to argue that ethnic and religious communities owe loyalty vertically, to the state, or a queen who is head of the Church of England. Rather, the loyalty they owe is horizontal, to their fellow citizens.

Full citizenship carries responsibilities as well as rights. The right to freedom of speech and religion confers a duty to accept the free speech and religion of others.

Most liberal values are process values: people of faith can look to change society through politics. Yet some things are sacrosanct, including equal rights for women. Those who cannot accept this should exercise their right to exit western society.

Obviously the identity crisis is most extreme and dangerous among young Muslims – partly because Islam is a resurgent faith, partly because Sunni theological debate has been stifled, partly because of Muslims’ suffering in the Middle East and the Balkans.

Yet lest anyone think that the fundamental question – can someone be a devout believer and a good British citizen? – is unique to Islam it is worth remembering that for centuries Protestant England agonised over whether it was possible to be Catholic and a loyal subject. As late as 1960 some Americans questioned whether Catholic John F. Kennedy could be president.

The horror of the London attacks is one of super-empowerment of a tiny handful in whom the identity crisis was twisted into murder. There have been white bombers too – David Copeland, the Soho nailbomber in Britain, Timothy McVeigh, the Oklahoma bomber in the US.

There is much work to be done. Yet none of this proves Islam is incompatible with western society. Britain has 1.6m Muslims and four bombers. There was great anger within this community about the war in Iraq and what did they do? They marched from Speaker’s Corner to Trafalgar Square and elected a firebrand Scottish leftist MP for Bethnal Green in London’s East End. Nothing could be more British.

The author is an FT editorial comment writer

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