Councils must foster an environment in which Muslim communities have no reason to tolerate terrorism, according to the Home Office's top civil servant.
In a rare interview, permanent secretary John Gieve said local efforts to confront Islamaphobia, and social exclusion among British Muslims, could stop disaffection spiralling into an acceptance - however unenthusiastic - of terrorism.
Drawing an analogy with Irish republicanism, Mr Gieve said: 'The numbers involved were always very small, but they were able to gain sufficient grudging acquiescence from others to survive.'
There were unique problems for British Muslims, particularly around Islamaphobia, he said. These were on top of the racism, discrimination and lack of economic opportunities faced by all black and minority ethnic communities, he added.
'The terrorist groups in question are presenting themselves as an Islamic movement, which creates an additional twist between Muslims and other groups in society. Of course they are entirely untypical [of British Muslims],' he said.
Gareth Daniel, chief executive of Brent LBC, which has the second highest ethnic minority population in the country, was sceptical about the link between exclusion and any reluctance to oppose extremism.
He said: 'My experience of the Muslim community in Brent is that there is no support for political extremism whatsoever.'
But he added: 'Public sector bodies like councils have a responsibility to show leadership on the issue of integration.'
Dr Azzam Tamimi, spokesman for the Muslim Association of Britain, said: The radicalisation of young Muslims is based on foreign policy, not domestic policy.
'There is no doubt the government tries to do things locally, but these initiatives have been defeated by its insistence on taking us to war i n Iraq and its total agreement with George Bush on Palestine.'
The profile of local government's community cohesion role shot up three years ago after race-based riots in Bradford, Burnley and Oldham.
The Home Office subsequently set up a community cohesion panel, headed by former Nottingham City Council chief executive Ted Cantle, which concluded area-based regeneration initiatives contribute to racial tensions by encouraging rivalry between ethnically segregated localities.
Mr Gieve said there had been some progress in the riot towns since 2001, but added: 'It's a very mixed picture.'
Mr Cantle, now an associate director at the Improvement & Development Agency, said: 'Local government has a huge role to play. If people see local government is trying to make sure all sections of a community are equally valued and supported it takes away a huge amount of disaffection and stops people looking elsewhere.'
Stephen Barnes, chief executive of Pendle BC, which borders Burnley, said the council had tried to stop area-based regeneration schemes based on competitive bidding from becoming divisive.
He said: 'We don't describe our funds as being specific to areas, but specific to themes such as tackling poor housing.'
But he added: 'We are in an area where there has been a history of trouble. There is a crime and disorder issue and a small thing can be the catalyst of an outbreak.'
Mr Gieve believes local solutions are also key to beating the British National Party.
'It's a very local picture and the far right parties are becoming more sophisticated in targeting areas of tension.
'Crime and disorder and anti-social behaviour are often the route of these tensions because people start blaming each other.'