Mosques in the UK should hire British-born imams on a living wage who are better equipped than foreign religious leaders to understand the challenges faced by British Muslims, a report has recommended.

The Missing Muslims: Unlocking British Muslim Potential for the Benefit of All is the outcome of an 18-month inquiry established by campaigning group Citizens UK and chaired by the former attorney general Dominic Grieve. Its chief task was to examine how the participation of Muslims in public and community life might be improved.

It describes engagement between the government and Muslim communities as “a broken relationship that needs to be resolved, and both parties need to be proactive in addressing this”.

The 76-page report, published on Monday, says “British Muslim experiences are more diverse than is often assumed”.

Among its recommendations is a call for mosques to review their management structures and appointment of imams. “The management committees of a number of the UK’s mosques need to better understand, and respond to, modern British life,” it says.

“It is of great importance that British-born imams, who have a good understanding of British culture and who fluently speak English, are encouraged and appointed in preference to overseas alternatives.”

The appointment of imams and others in teaching roles should be a transparent process and comply with legal requirements. Mosques should “invest in British-born imams who are to be paid a decent living wage, funded by Muslim institutions in the UK, and equipped with pastoral skills so they are able to deal with the challenges facing British Muslims”.

It suggests that universities could pair with seminaries to accredit educational schemes for imams.

Public discourse often focuses on Muslims as a disadvantaged group or a “threat within”, the report says. “Unlocking a fuller Muslim presence in and contribution to British public life could help to reduce perceptions of increasing polarisation within British society.”

The impact of the government’s Prevent strategy was frequently raised during more than 500 hours of meetings organised by the commission across the country with Muslim organisations, universities, schools, police forces, local authorities and others.

Acknowledging that an effective way of tackling extremism and radicalisation was an overriding concern, the report said: “This would be better achieved with a programme that is more greatly trusted, particularly by the UK’s Muslim communities.”

Dominic Grieve says mutual suspicion and incomprehension make the need for action to break down barriers even more necessary. Photograph: Linda Nylind/The Guardian

It added: “There is a need for debate within Muslim communities about what are, and are not, acceptable views for the Muslim ‘mainstream’. However, attempts to define this through it being imposed from the outside are unlikely to be helpful and more likely to be counterproductive. There is a strong sentiment that Muslims, as a monolith community, and Islam as a religion are unfairly targeted. This too creates a sense of alienation, which undermines a common aim of creating a united and strong society.”

The government should be “prepared to engage with views with which it disagrees and challenge these in discussion”.

It recommends the government adopts a definition of anti-Muslim prejudice, which should have “broad consensus on the boundaries of hatred and prejudice, and could be informed by the definition of antisemitism adopted by the government in 2016”.

The commission found lack of integration between Muslims and the majority white British population was most apparent in areas of high deprivation, “which points to the need to address structural barriers, including a lack of economic opportunities and discrimination”.

But it added: “Contrary to the popular representation that there is a ‘lack of integration’ by Muslim communities, the commission encountered a wealth of positive community work by British Muslims (as well as other groups) at a local level, across ethnic and religious lines.”

Muslim women face particularly acute barriers in employment, “compounded by cultural pressures some feel from within their own communities”. But, it added: “Resistance to greater female participation is cultural, not religious. What is clear is that there is no shortage of talented women who could make a significant contribution both to the UK and to their own community, if some of the barriers standing in their way could be removed.”

The report suggests Muslim umbrella bodies introduce voluntary standards for mosques and Islamic centres. Issues of governance, and equal access to leadership opportunities for youth and women, should be addressed.

Muslim communities need to take a stronger stance against the persecution of others, for example antisemitism, Christian persecution and other branches of Islam, the report concludes.

Launching the report, Grieve said there was “significant scepticism across British society about the integration, and even the shared allegiance, of their British Muslim fellow citizens. In turn, British Muslims have mixed views about the extent to which they have equal status or access to equal opportunities within the UK.

“This dynamic creates the risk of a downward spiral of mutual suspicion and incomprehension, which makes the need for action to break down barriers and bring people together even more necessary.”

The commission was co-chaired by Jenny Watson, the former chair of the Equal Opportunities Commission and the Electoral Commission.