The media presentation of Islam and selective highlighting of some fringe elements of this great religion says more about the agenda of those in power, what I call the power elites, than about fundamental differences between Islam and the West. When those in power can make its own population fearful of an external threat, they can grab more power. Hitler did that in Germany in the last century. Every tyrant who wish to rule without opposition set up some group as the fall guys so that civil liberties can be quashed.
The real conflict, in my opinion, is between those who wish to live peacefully in a pluralistic society that values difference and tolerance. Following Karl Popper, lets call these Open Societies. Open Societies allow people to pursue their own faiths or beliefs. Open Societies allow the free discussions of ideas and encourage the interchange of views and perspectives. Open Societies permit the spread of ideas and philosophies through persuasion and enrolment rather than through force. Open Societies value openness in transactions and abhor double-dealing and dissemblement. They believe that the ends do NOT always justify the means.
Ranged against Open Societies are the forces of intolerance. Again, following Popper, lets call these Totalitarians. Totalitarians know they have the hotline to the Truth, God, Allah, Jehovah, Brahma etc and wish to impose their vision on others whether the others like it or not. Totalitarians brook no opposition to their world view. They do not tolerate difference and see all who would resists their particular vision as heretics or counter-revolutionaries. Totalitarians believe the ends DO justify the means.
Fundamentalists are those who have a literal interpretation of their sacred texts. As long as they respect other people rights to make their own choices, fundamentalists are no threat to the Open Society. So called fundamentalist Christian sects have co-existed in liberal democracies for centuries. Examples would include Christadelphians, the Amish, Jehovah's Witnesses etc.
Liberal democracies have also allowed many forms of religions to coexists. In addition to the various sects of Christianity (Roman Catholic, Episcopalian, the various Orthodox Churches, Methodists, Baptists etc) most of the great world religions have been tolerated.
Not being that knowledgeable about Islam, I do not know of the different 'flavours'. However, I suspect in Islam there are a wide range of interpretations of the Quran ranging from the mysticism of the Sufis to the more traditional interpretations of the Sunnis. Some interpretations may well have a fundamentalist 'flavour' but as long as they do not enforce their beliefs on others through force, they too can co-exist in Open Societies.
The real enemies are those who would impose their views on others through manipulation, deceit and force. Both the Western and the Islamic world are besieged by forces of Totalitarianism. In the West, it is those who wish to curtail individual's freedom and rights so that they can impose their own views on all. Often, this is dressed up as being tough on an external enemies such as terrorists. Once the State can control all aspects of a citizens life, then it is much easier to push through their own agenda without considering civil righs or freedom of speech. In the Islamic world, it is those who wish to impose their own version of a State run under approved interpretations of Sharya Law. These people will define anything as threats to Islam and use this as justification for their armed struggle or jihad.
Ordinary people have struggled against terror throughout history and yet, ultimately, we have managed to create Open Societies. The English suffered the terrors raids by Anglo Saxons and then the Vikings in the Middle Ages. The Chinese had suffered continual raiding by the Hui Neng, the Mongols,. the Manchus etc. Ordinary people were massacred at the fall of Jerusalem in the First Crusades (including a large number of Christians). Jews, Gypsies and Slavs were killed in concentration camps in WW2. Now we have the massacres in Darfur and it goes on and on. Terror is the weapon of the Totalitarians.
I believe terror arises because ordinary people do not make a stand against Totalitarians. So the answer is to stand up to them. In liberal democracies, people should make a stand against those who would roll-back civil liberties. They should also encourage those minorities in their societies to make a stand against totalitarians within their midst. They should also put pressure on their politicians to ensure fairness and openness in foreign policy rather than manipulation of other states to further their own interests. Muslims should also challenge those who would pervert their faith for their own selfish ends. More should follow the example of Klemel Attaturk and strive to modernise their own countries through education and building democratic institutions appropriate to their culture and state of development.
The greatest weapon for totalitarians is the apathy of ordinary people. If we each, in our small way, reach out to those who do not share our faiths and endeavor to understand their position, then totalitarians cannot win. It is through discussion and dialogue that we can make common cause against those who would impose their views on us. There should not be a War on Terror. Instead, there should be a War on Totalitarians! The only thing we should not tolerate is intolerance!