It's infant prize day at King David School, a state primary in Moseley, Birmingham. The children sit cross-legged on the floor, their parents fiddling with their video cameras. The head, Steve Langford, is wearing a Sesame Street tie.

A typical end-of-term school event, then. But at King David there's a twist that gives it a claim to be one of the most extraordinary schools in the country: King David is a strictly Jewish school. Judaism is the only religion taught. There's a synagogue on site. The children learn modern Hebrew - Ivrit - the language of Israel. And they celebrate Israeli independence day.

But half the 247 pupils at the 40-year-old local authority-supported school are Muslim, and apparently the Muslim parents go through all sorts of hoops, including moving into the school's catchment area, to get their children into King David to learn Hebrew, wave Israeli flags on independence day and hang out with the people some would have us believe that they hate more than anyone in the world.

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The Muslim parents, mostly devout and many of the women wearing the hijab, say they love the ethos of the school, and even the kosher school lunches, which are suitable because halal and kosher dietary rules are virtually identical. The school is also respectful to Islam, setting aside a prayer room for the children and supplying Muslim teachers during Ramadan. At Eid, the Muslim children are wished Eid Mubarak in assembly, and all year round, if they wish, can wear a kufi (hat). Amazingly, dozens of the Muslim children choose instead to wear the Jewish kipah.

At the prize morning Carol Cooper, the RE teacher, says: "Boker tov," (Ivrit for "Good morning").

"Good morning Mrs Cooper," the children chant in reply. The entire school, Muslims, Jews, plus the handful of Christians and Sikhs then say the Shema, the holiest Jewish prayer, all together.

The Year Four violin club (five Muslims, two Jews) play "Little Bird, I Have Heard". Just as many prizes are being distributed to Hussains and Hassans and Shabinas as there are to Sauls and Rebeccas and Ruths. In fact, if anything, the Muslim children have beaten the Jewish ones. Thus does the Elsie Davis Prize for Progress go to a beaming little lad called Walid, the religious studies prize to a boy called Imran wearing a kipah and the progress prizes for Hebrew, to a boy called Habib and a girl called Alia.

Times being as they are, King David doesn't advertise its presence in a city where its pioneering multiculturalism could raise all kinds of unwelcome attention. There's a discreet signboard outside that reveals little about the school's unique nature. There are watchful video cameras high up on the walls, plus two electronic gates to pass through. Sadly, it is, to a significant extent, says Laurence Sharman, the (Christian) chairman of the PTA, "an undercover school".

The Muslim parents, however, are only too keen to talk in the playground about what might be seen by some in their communities as a controversial schooling decision.

"We actually bought a flat in the catchment area for the children to come here," says Nahid Shafiq, the mother of Zainah, four, and Hamza, nine, and wife of Mohammed, a taxi driver. "We were attracted by the high moral values of the school, and that's what we wanted our kids to have. None of us has any problem with it being a Jewish school. Why on earth should we? Our similarities as religions and cultures are far greater and more important than our differences. It's not even an issue.

"At the mosque, occasionally, people ask why we send the children here, but there is no antagonism whatsoever, and neither is there from anyone in our family. In fact, it was a big family decision to try and get them into King David. This is the real world. This is the way real people do things in the real world. All the violence and prejudice and problems - that's not real, that's just what you see on the news."

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Fawzia Ismail (the mother of Aly-Raza, nine, and Aliah, six) is equally positive. "My nephew came here and my brother showed me the school, so it's a bit of a family tradition now. We're very, very pleased with the school. It's so friendly. All the kids mix and go to one another's parties and are in and out of each other's houses. They teach a bit about Israel, but we don't have any problem with that. There are such similarities between our people and our societies."

Irum Rashid (mother of Hanan, nine, and Maryam, four) says that a lot of people in Small Heath are considering moving to Moseley because of King David. "It's a very happy school, the behaviour is fantastic, the food is great - because it's kosher - and so are the SATs results."

But what about learning Hebrew and the Jewish prayers? "I think it's great. The more knowledge, the more understanding," says one of the mothers. "They learn all they need about Islam at mosque school. Actually, the kids often sing Hebrew songs in the bath, which is a bit confusing because we speak Gujarati at home, but I think it's great."

The Jewish parents and teachers I speak to are just as enthusiastic. "You know, in these difficult times in the world, I think we show how things should be done. It's really a bit of a beacon," says one teacher, whose three children all went to King David and ended up at Oxford University.

Parent Trevor Aremband is from South Africa. "In Johannesburg, we have Jewish schools, but they're 100 per cent Jewish, so we were a bit shocked when we first came here. But the integration works so well. It's clearly the way to go in today's world. My son is eight and has loads of Muslim friends."

The most important thing, I am told repeatedly, is that the cross-cultural friendships forged at King David last a lifetime. I hear a conversation about how a Rebecca is going to fly over from the States for a Fatima's wedding. I am told about a pair of lads, one Jewish, one Muslim, who became friends the day they started in the nursery, went to senior school together as well as to university and are now living close to one another with their wives and families and are currently on holiday together.

King David was not designed to be such a beacon of inter-faith cooperation and friendship. Founded in 1865 as The Hebrew School, it was 100 per cent Jewish until the late 1950s.

Then two things began to happen: there was a growth in the Muslim population in middle-income areas such as Moseley, and a shrinking of Britain's Jewish community, especially outside the main centres of London and Manchester. Muslim children started coming to the school in the early 1960s, but the current position, in which they are in the majority (Jewish children comprise 35 per cent, Muslims 50 per cent, Christians, Sikhs and other, 15 per cent) is very new.

"One of the things that surprises people about this school," says Langford, "is that it's not an especially privileged intake. Half of our kids have English as an additional language. But the amazing thing is how well it all works. We have a new little boy here from China, whose only English a few weeks ago was to ask for the toilet. He now speaks English - and can say the Shema perfectly.

"If you gauge success, for instance, by racial incidents, which schools always have to report to the LEA, we have at the most one a term. And that can just mean some harsh words with a racial slant used in the playground. At multicultural inner city schools where I've taught, there will be far, far more than that, possibly one or more a week."

In terms of SATs and Ofsted inspections, King David has also shone. It is rated as good - the second highest possible ranking - in all areas, and Ofsted made a special mention at the last inspection of the integration between children of different faiths and races. In the recent SATs results, the school also came in well above the national average in all subjects.

Steve Langford, a Warwick University economics graduate, is himself a bit of a paradox. He is Church of England on both parental sides and only became interested in Judaism when he worked in a Jewish summer camp in Massachusetts in his gap year. His interest paid off when he got a teaching job a King David. Now he is learning Ivrit at evening classes and goes to Israel for holidays.

The Rabbi of Birmingham's Singers Hill Synagogue, one of the financial backers of King David, is proud of Steve Langford and of the school's extraordinary interfaith record.

"King David School is amazing," says Rabbi Tann. "The reason I think it works well is that racism is engendered entirely by adults. Children don't have it within themselves. Their natural mode is to play happily with everyone. It's only when adults say, 'Don't play with him, he's black, or don't have anything to do with him, he's Muslim, that troubles begin.'

"We never have any racial or inter-faith problems at all. Not ever. In 20 years here, it's simply never happened in any significant way. We teach that if you don't like someone, you avoid them. Don't play with them. Go to the other side of the playground. I believe that if more people followed the lead of King David School, we'd have a much more peaceful world."