Christmas is coming in Giza, but the neighbourhood is far from festive. The road to St Mary's, the half-built church in the neighbourhood of Al-Talbiyya, is strewn with giant clumps of concrete – all torn from the four-lane highway that towers above.

It was from this highway late last month that security forces launched a barrage of tear gas, live ammunition and handheld rocks upon thousands of Coptic Christians demonstrating below.

"Imagine how it feels to be standing in your own country with your own people, as the agents of your own government begin hurling bullets at you and your children," recalls Ayed Gad, a pharmacy worker.

The clashes, triggered when local authorities halted construction at St Mary's, left two young Copts dead. A priest described the government's actions as barbaric. "The police acted as if they were Israel and we were Hamas," Father Mina Zarif told a local newspaper.

It's been a hard year for Egypt's estimated 8 million Copts, the largest Christian community in the Middle East. It began with a drive-by massacre of churchgoers leaving midnight mass; it has ended with the deadly violence in Al-Talbiyya, along with election results that leave Copts with less than 1% representation in parliament.

In between there has been a bitter row over the alleged kidnapping of a priest's wife who wanted to convert to Islam, accusations by Muslim clerics that Christian places of worship are being used to stockpile weapons, and a high-profile spat between the Coptic pope and the Egyptian government over the church's right to regulate "personal status" issues among its members.

"Sectarian polarisation of Christians and Muslims stretches back over the centuries, but the problem of sectarian violence is a modern phenomenon," says Hossam Bahgat, director of the Egyptian Initiative for Personal Rights and a prominent human rights activist. "This year we've seen Muslim protesters shouting anti-Christian slogans after the Friday sermon, which is a very new and worrying development."

Bahgat's campaign work concentrates on two areas: communal violence between Muslims and Christians, and the more humdrum problem of daily prejudice.

"The issue in Egypt is not just the torching of homes and attacks on monasteries, but also the everyday examples of employment discrimination and other non-violent manifestations of sectarianism," he claims.

Copts complain of being shut out of the higher echelons of business, politics and academia; despite notable exceptions such as the finance minister Youssef Boutros Ghali or the telecoms tycoon Naguib Sawiris, most Christians believe they are denied opportunities because of their religion – a state of psychological insecurity that has reinforced the entrenchment of sectarian identities.

Just down the road from St Mary's the church of St Paul's is tucked away down a dimly-lit side alley. Here, in a third-floor chapel and beneath the glow of energy-saving chandeliers, festive worshippers are engaging in the Coptic fast – abstaining from animal products for 43 days in preparation for the Advent – and pondering another institutional challenge to their community.

Every pew is packed solid, and it's been standing room only for evening services throughout the run-up to Coptic Christmas, which is celebrated on 7 January.

"Things have been getting more crowded since the late 1980s; to keep up with the growing size of our community we'd need at least three or four new churches – but of course they can't be built," says Nabil Girgis, a senior member of the congregation.

Egypt's Christians have played as big a part in the recent demographic explosion as their fellow Muslims, but whereas new mosques are built and renovated freely, Christians have to navigate a bewilderingly web of bureaucracy to secure permission for construction. There are an estimated 2,000 churches in Egypt today, alongside 93,000 mosques.

Some feel their very identity as Egyptians is being deliberately eroded by the state. Bahgat expresses a victimisation that leaves Christians feeling "assaulted twice, once by their Muslim neighbours and then again when the powers-that-be side with the attackers".

Peter Gobrayel, a worshipper at St Paul's, said; "We are treated as second-class citizens in every way; the only interaction we have with the government leaves us feeling like failures, and of course that makes us feel like we don't belong.

"I fought for Egypt in the 1967 and 1973 wars, and was a PoW in Israel; you could say that I've spent the whole of my life on the frontline for my country. Now, speaking honestly, when I see the nation burning I just want to add petrol. I am an Egyptian first and foremost, and yet my country seems to want to eradicate me."

For Hossam Bahgat, Copt-Muslim tensions will only be resolved when the government ends its security-driven response to sectarian violence and begins implementing the rule of law.

"The reaction of the state to sectarian trouble is always motivated primarily by their desire to impose 'quiet'; hence it is directed by the security services in a typically heavy-handed way," he argues.

In the aftermath of the Al-Talbiyya fighting, over 150 local Copts were taken to jail, prompting Pope Shenouda to withdraw to a rural monastery in protest.

"When you look at the big picture, it's so clear that the security apparatus is at the heart of the problem," says Bahgat. "Their tactics are bad not only for democracy and human rights, but for long-terms security too."

Gobrayel agrees. "We just want to be treated like Egyptians, with our rights respected and our voices heard. These days it's hard to find anyone, Christian or Muslim, who gets treated like that."

• This article was amended on 4 January 2011. The original referred to Hossam Baghat throughout. This has been corrected.