A critical issue facing European school systems and one with broad social implications is how to accommodate the different demands of a growing number of non-Western immigrants, particularly Muslims. "Historically, faith-based schools have provided a route for immigrants, refugees and minorities...to gain a foothold in their new country, yet the extent to which states should endorse faith schools, as part of publicly funded schooling, has been the source of ongoing debate and dispute." Does the distinctive religious character of these faith schools inhibit the promotion of common civic values? Until recently in Europe, there were two radically opposed policy orientations with respect to cultural diversity in education and the way to integrate migrants from diverse cultures: multiculturalism and civic integration. Currently, however, there is a retreat from multiculturalism all over Europe, due to the perceived failures of official multiculturalist policies, the rise of populist movements with programs centered around the issue of immigration, and threats to the liberal constitutional state in the form of terrorism. This is most visible in Britain and the Netherlands, two of the three European societies (the other being Sweden) that have so far been most committed to official multiculturalism. In the Netherlands this is mainly expressed in attitudes toward Muslim immigrants in general and Islamic institutions such as schools in particular. The Dutch system of education, which ensures independence and full state funding for religious schools, has long been seen as an example for other countries to emulate. The right to educational pluralism, as it exists in the Netherlands, its relatively good performance in international comparisons, and the image of a tolerant liberal society offered an attractive prospect to supporters of more freedom of parental choice in education. It is questionable, however, whether this general rosy image really fits in with reality today, with the present struggle in Dutch society on the fundamental question of whether the present system that promotes freedom and autonomy in education can contribute to the integration of migrants and social cohesion in society. This article addresses that question. This article also discusses the issues faced by the Netherlands: philosophical neutrality of government; subsidizing of private initiatives, and approaches to ethnic minority policy. (Contains 4 notes.)