Here is a very common quote used by people attempting to portray Islam as an intolerant faith that discourages Muslims from being friends with non-Muslims.

The verse from the Qur’an they use is taken from Surah Al Maidah

“SHAKIR: O you who believe! do not take the Jews and the Christians for friends; they are friends of each other; and whoever amongst you takes them for a friend, then surely he is one of them; surely Allah does not guide the unjust people.” (5:51)

SHAKIR here refers to the particular translation that is being used by myself. The translation is the one written by M. H. Shakir. There are other common and widely used English language translations such as the ones by Yusuf Ali or by Marmaduke Pickthall. 

When using verses from the Qur'an it is important not to take verses out of context, other verses need to be read too.

At first glance, reading this particular verse itself could make you believe that Islam is an intolerant faith. Is has regularly been used by both Muslims and non-Muslims to claim that Muslims should not be making friends or associating with non-Muslims. There are two things we need to keep in mind when reading a translation of the Qur'an or attempting to interpret specific verses.

The first is that it is always necessary to put verses into the appropriate context. We need to know not only the historical basis of the verse itself, where and when it was revealed but also what verses led to this one or follow on from it. You can not treat verses as one single isolated unit.

Secondly, translating from one language to another is not an exact science, each translation has its own pros and cons. Translators can also include their own biases when translating a verse. An example of this is a commonly available Saudi Arabian printed translation that renders the above verse as:

"O you who believe! Take not the Jews and the Christians as Auliya' (friends, protectors, helpers, etc.), they are but Auliya' to one another. And if any amongst you takes them as Auliya', then surely he is one of them. Verily, Allah guides not those people who are the Zalimun" (polytheists and wrongdoers and unjust). (5:51)

The text appearing in brackets is not part of the original Arabic but it is included in the translation by the translator to provide additional meaning or context. If someone were to come across this translation and did not read other parts of the Qur'an they could easily assume that Muslims could not be friends with Jews and Christians. 

The Qur'an actually says we should not make "friends" with those who have wronged us.

Let's have a look at some other verses.

“SHAKIR: O you who believe! do not take My enemy and your enemy for friends: would you offer them love while they deny what has come to you of the truth, driving out the Messenger and yourselves because you believe in Allah, your Lord? If you go forth struggling hard in My path and seeking My pleasure, would you manifest love to them? And I know what you conceal and what you manifest; and whoever of you does this, he indeed has gone astray from the straight path. (60:01)”
...

SHAKIR: It may be that Allah will bring about friendship between you and those whom you hold to be your enemies among them; and Allah is Powerful; and Allah is Forgiving, Merciful.

SHAKIR: Allah does not forbid you respecting those who have not made war against you on account of (your) religion, and have not driven you forth from your homes, that you show them kindness and deal with them justly; surely Allah loves the doers of justice.

SHAKIR: Allah only forbids you respecting those who made war upon you on account of (your) religion, and drove you forth from your homes and backed up (others) in your expulsion, that you make friends with them, and whoever makes friends with them, these are the unjust.” (60:07 – 60: 09)

In summary

• God asks why you take those as "friends" (Awliya) those who drove you from your homes simply because you were Muslim.
• God may bring about friendship between some of those whom you used to believe were your enemies.
• Show kindness to those who have not wronged you and respect them.
• You are forbidden from respecting those who engaged in war with you simply on the basis of your religion.

The above verses provide some clarity on exactly who you are prevented from making “friends” with. The verses above are also only referring to early Muslims who were driven from their homes simply for being Muslim.

Now let’s have a look at Surah Al Maidah

“SHAKIR: This day (all) the good things are allowed to you; and the food of those who have been given the Book is lawful for you and your food is lawful for them; and the chaste from among the believing women and the chaste from among those who have been given the Book before you (are lawful for you); when you have given them their dowries, taking (them) in marriage, not fornicating nor taking them for paramours in secret; and whoever denies faith, his work indeed is of no account, and in the hereafter he shall be one of the losers. “ (05:05)
...

“SHAKIR: O you who believe! Be upright for Allah, bearers of witness with justice, and let not hatred of a people incite you not to act equitably; act equitably, that is nearer to piety, and be careful of (your duty to) Allah; surely Allah is Aware of what you do.

SHAKIR: Allah has promised to those who believe and do good deeds (that) they shall have forgiveness and a mighty reward.” (05:08-05:09)

And the verse you have been waiting for!

“SHAKIR: O you who believe! do not take the Jews and the Christians for friends; they are friends of each other; and whoever amongst you takes them for a friend, then surely he is one of them; surely Allah does not guide the unjust people.” (05:51)

What is the historical record of when this verse was revealed?

In the Quranic exegesis it says this particular verse was revealed after the battle of Uhud when some Muslims said they were going to live with the Christians so that they could be safe and some others said they were going to live with the Jews so that they could be safe. They were admonished and reminded that they should not seek the protection of anyone else but that they should stick together, especially not the protection of those that were colluding against them at the time.

"Awliya" doesn't necessarily mean "friend".

In verse 5:51 the word "Awliya" is used. It is a plural and its singular is "wali". This word is generally translated as friends in English. The correct translation of the word "wali" is not "friend" but it is someone who is very close and intimate. It can also be used to mean "guardian, protector, patron, lord and master". For example, Sufi’s sometimes refer to their spiritual teachers as “Wali” or “Wali-ullah” which means someone who is close to God (an intimate of God). The word itself has been used in the Qur’an several times in this particular context as that of a protector.

Awliya does not necessarily mean “friend” in fact it has been translated with other meanings in other parts of the Qur’an

“SHAKIR: O you who believe! do not take your fathers and your brothers for guardians if they love unbelief more than belief; and whoever of you takes them for a guardian, these it is that are the unjust. “ (09:23)

The word here used for guardian is “Awliya”. The Yusuf Ali translation has translated it as “protectors”

So if we were to re-read that verse we could translate it as saying (paraphrased) “do not take Jews and Christians as your guardians (or protectors) but rather you should work together and be resilient”

This is not the same as saying don't take them as your friends!

In the year 628 CE The Prophet Muhammed (peace be upon him) wrote a letter to Christian monks

The Letter Reads:

This is a message from Muhammad ibn Abdullah, as a covenant to those who adopt Christianity, near and far, we are with them.

Verily I, the servants, the helpers, and my followers defend them, because Christians are my citizens; and by Allah! I hold out against anything that displeases them.

No compulsion is to be on them.

Neither are their judges to be removed from their jobs nor their monks from their monasteries.

No one is to destroy a house of their religion, to damage it, or to carry anything from it to the Muslims’ houses.

Should anyone take any of these, he would spoil God’s covenant and disobey His Prophet. Verily, they are my allies and have my secure charter against all that they hate.

No one is to force them to travel or to oblige them to fight.

The Muslims are to fight for them.

If a female Christian is married to a Muslim, it is not to take place without her approval. She is not to be prevented from visiting her church to pray.

Their churches are to be respected. They are neither to be prevented from repairing them nor the sacredness of their covenants.

No one of the nation (Muslims) is to disobey the covenant till the Last Day (end of the world).

-

St Catherines Monastery has this to say about their letter:

“According to the tradition preserved at Sinai, Mohammed (AS) both knew and visited the monastery and the Sinai fathers. The Koran makes mention of the Sinai holy sites. In the second year of the Hegira, corresponding to AD 626, a delegation from Sinai requested a letter of protection from Mohammed (S). This was granted, and authorized by him when he placed his hand upon the document. In AD 1517, Sultan Selim I confirmed the monastery’s prerogatives, but took the original letter of protection for safekeeping to the royal treasury in Constantinople. At the same time, he gave the monastery certified copies of this document, each depicting the hand print of Mohammed (S) in token of his having touched the original. ”

Finally, Muslim men can marry Jewish and Christian women with no compulsion for them to change their faith. 

Surely, if a Muslim could not be friends with a non-Muslim then this would not be allowed to happen?

Resources

The Qur’an with three popular English language translations

http://en.wikipedia.org/wiki/Saint_Catherine's_Monastery,_Mount_Sinai