The aspect of striking terror (this word can also be translated as ‘awe’ or ‘fear’) in this verse cannot be reconciled with the modern-day events around terrorism with attacks upon unsuspecting and unarmed civilians. The verse speaks of a state of fear or terror of the disbelievers due to their belief in associating partners with God. Since the disbelievers’ faith in a multitude of Gods is intellectually and rationally weak, they have a lower level of strength of conviction causing them to be more fearful. In the language of the Quran, there are other instances where God refers to a condition of disbelievers or hypocrites such as in verse 2:8 where it states that “Allah has set a seal on their hearts…”. Even in that context it does not mean that God directly places seals on their hearts but the system of God is such that He has already set in motion all of the causes and effects and therefore when someone chooses ignorance it leads to further ignorance to the extent that their hearts become sealed in their conviction. Therefore, in such instances the implication is not that God Himself or by way of His system is against those who disbelieve, instead it means they have chosen disbelief and that disbelief has caused fear because of the doubt that exists in their hearts. Further, the verse speaks of God striking that fear due to their convictions, not humans or Muslims striking the fear.
Secondly, this verse is clearly known to be addressing a state of battle with armed fighting. This was known as the Battle of Uhud where the Muslims had to retreat from battle after an apparent victory due to discord in their command structure allowing the enemy to gain the upper hand. Verses 3:153-154 confirm this: And Allah had surely made good to you His promise when you were slaying and destroying them by His leave, until, when you became lax and disagreed among yourselves concerning the order and you disobeyed…when you were running away and looked not back at anyone while the Messenger was calling out to you from your rear, then He gave you a sorrow in recompense for a sorrow, that you might not grieve for what escaped you, nor for what befell you. And Allah is well aware of what you do.
Therefore, this verse is relating to strength through conviction in the right set of beliefs in the One God and the fundamental values of peace, freedom and equality in Islam versus a weaker belief in a multitude of Gods espoused by an oppressive regime that had unfairly attacked Muslims. The verse deals with wartime battle circumstance and has nothing to do with the modern concept of extremist terrorism which is in violation of the principles of Islam and Quran as detailed below in ‘Fundamental Teachings of Islam’.
From ‘Murder in the Name of Allah’ (p. 115-116) by Mirza Tahir Ahmad (4th Caliph of Ahmadiyya Muslim Community)
I am conscious of the fact that, strictly speaking, the word ‘terrorism’ applies to acts of terror, attempts to cause bomb explosions, and so on. But I do not believe that this is the only type of terrorism the world is suffering from. I believe that whenever repressive measures are taken by governments against their own countrymen to still the voice of disagreement, those measures too should be included within the term ‘terrorism’ and be as strongly and roundly condemned as any other form of terrorism. I consider all oppressive measures taken by governments against the left or right within their own countries as terrorism of the worst type. When acts of terrorism are directed against foreign governments and take the form of the use of explosives here and there, or the hijacking of planes, such events gain a great deal of attention. World opinion sympathizes with the victims of such callous terrorist acts, as indeed it should.
Such sympathies are not merely voiced, but are generally followed by constructive means to prevent and preempt such attempts in the future. However, what about those hundreds of thousands of people suffering under the stem and merciless hands of their own governments? Their cries of anguish are seldom heard outside. Their cries of protest are very often muffled by the application of strict measures of censorship. Even if philanthropic agencies like Amnesty International draw the attention of the world to such cruel acts of persecution, torture, and denial of human rights, such events are only mildly condemned, if at all, by world governments. More often than not, these are considered to be internal matters for the countries concerned. Instead of being described as acts of terrorism, they are widely mentioned as government efforts to suppress terrorism in these countries, and to establish peace, law and order.
I am quite convinced that in essence all restrictive and punitive measures taken by a government against its own people to suppress a popular movement or suspected opposition, more often than not, go beyond the limits of genuine legal measures and end up as brutal acts of violence designed to strike terror in the hearts of a dissatisfied section of their own people. Humanity has suffered far more through such acts of State terrorism than through all acts of sabotage or hijacking put together. As far as Islam is concerned, it categorically rejects and condemns every form of terrorism. It does not provide any cover or justification for any act of violence, be it committed by an individual, a group or a government.