Kadijie is preparing for the annual Haldon Street festival, a vibrant celebration of the local community – which includes thousands of Greeks, Chinese and Vietnamese – that should, weather permitting, draw 30,000 Sydneysiders on Saturday. "The beautiful thing with Lakemba is we're like a little family," Kadijie said. "We all get along, we watch out for each other." After a week in which the street has been pilloried in the tabloid press as a threatening "monoculture" where English is not spoken and extremists and women-hating hoons congregate, the festival will be a rebuttal to the ridicule. The hostile media coverage this week – including false reports of terrorist flags flying in western Sydney shops and homes – was followed by the latest barbaric missive from terrorist group Islamic State, a video of the beheading of photojournalist James Foley. For Prime Minister Tony Abbott, it made for a challenging backdrop as he spent this week meeting with Islamic leaders to garner support for his proposed counterterrorism laws and to build a unified front to fight extremists with "Team Australia".

Muslims were appalled by the execution, as they have been by the steady flow of shocking images of decapitations and reports of the mass murder of ethnic minorities by Islamic State, the terrorist group formerly known as ISIL. The fact that the group that has rampaged across Syria and Iraq includes dozens of Australians among its fighters also alarms them. "There's no second opinion on that. We do not condone such actions," said Sheikh Shady Alsuleiman, secretary of the Australian National Imams Council, who grew up around Lakemba and is a graduate of Punchbowl High. "As a Muslim, it's not acceptable; as an Australian, it's not acceptable; as a human being, it's not acceptable – in all dimensions, it's not acceptable." Sheikh Shady said Muslims are becoming frustrated by being associated with the behaviour of violent extremists abroad.

"We need to always justify ourselves over actions that we have nothing to do with, [that] we condemn and deplore before anyone else, and more than anyone else." Groups like Islamic State are keenly aware of the way such images can promote hatred of Muslims in Western societies while simultaneously stoking resentment and alienation from those who follow the Islamic faith. It is another dimension, and perhaps the most insidious, of the tactics employed by the terror group's propaganda machine. It is in this febrile and lacerating emotional atmosphere that divisions can be sown and recruits harvested by an organisation that relies heavily on foreign fighters, including thousands from the West. Abbott's objective to foster unity is laudable on the grounds of nation-building alone.

Inclusive leadership from the Prime Minister is also a key component of arguably the most important counterterrorism strategy – reducing the alienation and anger among a section of the Muslim community that can ferment extremism that, in a tiny but disturbing minority of cases, leads to terrorism. "As the September 11th assaults on the United States showed, it doesn't take very many people to do enormous damage to countries using modern technology, with all of the abilities that the modern world gives them," Abbott said. And there are well-founded fears that those Australians who return could launch terrorist attacks here. Two thirds of the 19 Australians who went to wage war alongside the Taliban in Afghanistan returned to plot mass casualty attacks here. The analysis of the security threat is sound but Abbott's Team Australia project was framed at the outset as a call for the Muslim community to get with the program. He told broadcaster Ray Hadley before heading into the first of the meetings: "You don't migrate to this country unless you want to join our team, and that's the point I will be stressing."

He added that "the only flag that should be flying is the Australian national flag". The remarks, in part, prompted a boycott from some Islamic groups of a meeting held in Melbourne and a letter from a group of some Muslim groups that he was fomenting "racist caricatures of Muslims as backwards, prone to violence and inherently problematic". Where was the acknowledgement of their abhorrence of Islamic State's crimes and the blowback they suffer from rising anti-Islamic sentiment? One of the signatories of the letter, Yassir Morsi, a researcher at the University of South Australia, said: "It sounded Like George W. Bush, 'You are with us or against us.' " Morsi, who wrote his PhD on Islamophobia, says the problem of prejudice is widespread.

"As an Arab man, a Muslim man, I have felt watched for 15 years," he says. "When you feel watched, you don't feel at home. "When I feel most Australian is when [I] have a right to dissent without facing all the anti-Islam cliches." Tony Burke, Labor member for Watson, which encompasses Lakemba and a large Muslim population, recalled last week putting up a Facebook posting to congratulate Muslims on the Eid festival, which marks the end of Ramadan. The comments were filled with messages of hatred from non-Muslims, in contrast to the complementary messages from Muslims when he posted a Christmas message, he told a seminar run by the Lebanese Muslim Association. "What was left there was the only window I get into the racism and hatred, the Islamophobia, that you have to live with," he told the seminar.

A festering source of resentment among Muslims is the language the media use when reporting on terrorism, the practice of adding "-ist" to two of the most sacred words in the religion – Islam and jihad – to describe extremists who do not follow the tenets of the faith. "They shouldn't be called Islamic State. It should be Un Islamic State. Or Heretic State," said Keysar Trad, an executive of the group Muslims Australia. The term jihad has been terribly misused and misrepresented, Sheikh Shady added. "The word jihad in Islam means 'striving for a good cause', and there's no better cause than to uphold unity, tolerance, cohesion, co-existence, acceptance. This is the form of jihad that we believe in ... "That's something that we openly say, and something that we openly preach. If it's jihad that you want to uphold, there's jihad in Australia to uphold – that's by being good Australian citizens and upholding the law, and integrating with one another, working together and being the best Muslims in this country by being respectful, by being dutiful."

Perhaps the most potent grievance among the Muslim community is the apparent double standard about cracking down on Australians going to join the fight in Syria and Iraq while letting Israel-Australia dual nationals join the Israeli army. The matter was raised at his meetings this week with community leaders. Abbott responded that the laws allow dual nationals to serve in overseas militaries, but only those of a nation-state and certainly not those of a designated terrorist group like Islamic State. Such explanations are unlikely to convince many. In a globalised world, Muslims in Australia access a depiction of the wretched and intractable Israel-Palestine conflict in a way that many Australians do not. Many have seen far more graphic footage of the recent assault on Gaza, a conflict viewed as unjust and rooted in Israel's occupation of Palestinian territory and the constant expansion of settlements on land recognised by the United Nations – and Australia – as theirs. Perceptions of bias have been fuelled by the lingering astonishment of Abbott's remarks at Sydney's Central synagogue in 2012 that: "Australians are Israelis. We are all Israelis."

Even so, those who participated in the meetings with the Prime Minister described them as constructive, and praised Abbott's conduct. "Islam is a religion that urges you always to be open to dialogue to those that come in peace. We will talk and leave it to God," Trad said. "[Abbott] spoke but he also listened a lot … even if some of the things he heard made him uncomfortable," he said. "That was a winning tactic." And, perhaps responding to the feedback, Abbott's rhetoric became more inclusive later in the week.

"I don't want any suggestion that some of our citizens are against our country," he told ABC Radio. "The point I keep making in all of my discussions with migrant groups is that you chose us. You chose us. You voted confidence in Australia that makes you first-class citizens of your new home. You chose in our country in a way that the native born haven't ... "You'll never find this government questioning the loyalty to Australia of our migrant communities." Security agencies are determined to reach out to the Muslim community, with Australian Security Intelligence Organisation boss David Irvine taking to the airwaves to pronounce he was "utterly outraged" by a newspaper headline that trumpeted the West would be "fighting Islam for 100 years". Certainly, there is common cause between Abbott, the security agencies and the Muslim community. Islamic State, with its unconscionable brutality and presumptuous claims that its leader Abu Bakr Al-Baghdadi is the caliph or ruler of all Muslims, has enraged Islamic communities in Australia and the world. The Grand Mufti of Saudi Arabia, home to Islam's two most sacred sites, described the group this week as the "number one threat to Islam".

"Extremist and militant ideas and terrorism which spread decay on Earth, destroying human civilisation, are not in any way part of Islam, but are enemy number one of Islam, and Muslims are their first victims," he said. But, as Yassir Morsi notes: "On one hand [Islamic State] is a threat. The Australian government have to be worried about that threat. "But on the other hand the way we talk and respond to [Islamic State] is also a potential threat." Kadijie El-Ahmad prefers not to discuss politics but says it is upsetting when people attack Muslims for overseas events or see Islam as somehow against Australian values. She is looking forward to the Haldon Street Festival and will help set up stalls and ensure the busy children's program of face-painting, rides and an animal farm runs smoothly. Her clothing store La-Bonita will hold a 20 per cent store-wide sale.

Loading "I hope the weather holds out. I think that's our main concern. It's really exciting because of the vibe of the whole atmosphere, people coming together, just seeing people enjoying it," she said. "To me, this is my country. I wouldn't think of it any other way. In body and soul, I have respect for anyone and everyone whether it's any religion, colour or race. We're all human in the end."