Developments in Indonesia since the fall of Soeharto in 1998 have greatly changed the image of Indonesian Islam and the existing perception of Indonesian Muslims as tolerant and inclined to compromise. In the heyday of the New Order, the 1970s and 1980s, Indonesian Islam had presented a smiling face — perhaps appropriately so, under an authoritarian ruler who was known as “the smiling general”. The dominant discourse was modernist and broadly supportive of the government's development programme. It embraced the essentially secular state ideology of Pancasila, favoured harmonious relations (and equal rights) with the country's non-Muslim minorities, and rejected the idea of an Islamic state as inappropriate for Indonesia. Some key representatives spoke of “cultural Islam” as their alternative to political Islam and emphasized that Indonesia's Muslim cultures were as authentically Muslim as Middle Eastern varieties of Islam.

Like Soeharto's smile, the friendly face of the most visible Muslim spokespersons hid from view some less pleasant realities, notably the mass killings of alleged communists during 1965–66, which had been orchestrated by Soeharto's military but largely carried out by killing squads recruited from the main Muslim organizations. There was also an undercurrent of more fundamentalist Islamic thought and activism, and a broad fear in Muslim circles — not entirely unjustified — of Christian efforts to subvert Islam. However, the liberal, tolerant and open-minded discourse of the likes of Nurcholish Madjid and Abdurrahman Wahid was almost hegemonic. It was widely covered in the press and was influential in the universities, in the Ministry of Religious Affairs and other major Muslim institutions, and among the emerging middle class.

The post-Soeharto years have presented a very different face of Indonesian Islam. For several years, there were violent inter-religious conflicts all over the country. Jihad movements (supported by factions of the military and local interest groups) carried the banner of Islam to local conflicts, turning them into battlefields in a struggle that appeared to divide the entire nation.