Christianity has their own country. It is called Vatican City. Jews have their own state, but they are always at war to keep it. Many other countries have an "official" religion, which is tightly interwound with the politics of that country. Why should Muslims not have their own country, then?
To answer the central question of the thread, I am at a loss to see how Islam could not be a religion, and have not seen a good explanation on this thread yet. From our Eurocentric viewing of religion, they have prophets, many of which also belong in the Christian Bible. They acknowledge Jesus, although they do not see him as the central figure of their religion. There are commandments and prayers for Islam, although they are different to the Christian prayers. From a more diverse viewing of what a religion is, it has a central set of stories and commandments that all worshippers must abide by, and so forth. Should that fail to persuade, Islam is deemed a religion by just about all political authorities, and that is good enough for me.