British Muslim leaders have said that ministers need to stop playing down links between foreign policy and discontent within the community.
Ihtisham Hibatullah of the British Muslim Initiative told Al Jazeera: "We have had Afghanistan and Iraq and its about time we say 'enough is enough'.
"Yes we do need more dialogue but the damage has been done."
Anas al-Tikriti of the Muslim Association of Great Britain told Al Jazeera that the problems were more wide-ranging than the government was prepared to admit.
"The problem is not a security issue within the Muslim community it is political in nature.
"One of the reasons for the London bombings was the government's foreign policy, but the government refuses to admit this."
The document says that the government rushed its response to the July 2005 London underground bombings.
And that too much emphasis has been placed on police powers and security and not enough on engaging with the Muslim community.
The UK government has rejected that view, arguing that it is flawed and out of date.
Demos says that by viewing Muslims as a single interest group the British government has failed to draw a distinction between angry Muslim opinion and those who would seek to use violence.
Engaging with Muslim communities could offer a source of intelligence and help in diverting potential extremists away from violence, the study says.
The report concludes that the government also needs to respond to the grievances of Muslim communities on foreign policy and social justice issues – either to accept them or refute them.