The answer to that question in sixteenth and seventeenth century Iran was a definite YES. But the different monotheistic faiths have always found it difficult to live together for long, and religious tolerance is usually both contested and fragile. In this programme, I'll be exploring the situation in Iran through an 'alam' - a lavishly gilded ceremonial sword. Alams were originally battle standards, designed to be carried like flags into the fight, but in seventeenth-century Iran they were used in great religious processions, and rallied not warriors, but the faithful.

"The alam is a beautiful object in itself. It was what preceded the king. It combines opulence and greatness with suffering and humility." (Haleh Afshar)

Throughout this week we're thinking about the co-existence - peaceful or otherwise - of different faiths, and we have objects from India and Central America, Europe and Indonesia that embody one of the key concerns of the age - the political consequences of belief. Today we are in Iran, with the ruling Safavid Dynasty, and with a portable declaration of faith.

The Safavid Dynasty came to power in 1501, and it established Shi'a Islam as the state religion of Iran, a position it has held ever since. It's an interesting parallel to events in Tudor England, which became officially Protestant at roughly the same time as Iran became Shi'a. In both countries, religion became a defining element of national identity, setting the nation apart from its hostile neighbours: Protestant England from Catholic Spain; Shi'a Iran from its Sunni neighbours, above all Turkey.

Iran, around 1600, was led by a ruler of rare political nous, and even rarer religious pragmatism - Shah 'Abbas. He was a contemporary of Elizabeth I of England, and was just as keen as she was to develop international trade and contacts. He invited the world to visit his capital in Isfahan, welcoming Chinese envoys at the same time as hiring Englishmen as his advisors. He expanded his borders, and in the process he captured Armenian Christians, whom he relocated to Isfahan. The deal was simple. Armenian traders developed the highly profitable international trade in silks and textiles and, in return, Shah 'Abbas built them the Christian cathedral that I've just visited. European travellers were astonished by this active religious tolerance, with Christians and Jews each given their own places of worship, peacefully accommodated within a Muslim state - a level of religious diversity unthinkable in Christian Europe at the time. Isfahan became a centre for Islamic scholarship, and a place where the arts flourished. Architecture, painting and high craft in silks, ceramics and metalwork - all were put to the service of the faith. And the legacy of Shah 'Abbas's achievement can still be clearly seen in this programme's object, the alam, which was made around 1700.

This Shi'a Iran of the Safavid shahs, sophisticated and cosmopolitan, prosperous and devout, is in many ways encapsulated in the object I'm looking at now. It's approximately sword-shaped, with a disc between the blade and the handle. It's about four feet (120 cm) high, and it was meant to be mounted on a long pole and carried high in procession through the streets. It's made of gilded brass, and it's typical of the metal-working tradition that has evolved in Iran, and especially in Isfahan, where merchants and craftsman from India, the Near East and Europe met and traded.

But however cosmopolitan the style and skill, this alam was made specifically for use in a Shi'a Muslim ceremony. The blade of the sword has been transformed into a filigree of words and pattern, and these words are effectively a declaration of Shi'a faith. Words like this are now part of the physical and architectural fabric of Shi'a Isfahan.

I'm now standing in the mosque of Shaykh Lutfallah, built by Shah 'Abbas at the same time as he built the cathedral for the Christians. This building is entirely a monument to the word, and the structural elements of the architecture are marked out with inscriptions - inscriptions of the word of God, of the words of the Prophet, and of other holy texts. And over the 'mihrab', the central niche, which marks the direction of Mecca and where we should pray, are written the names of the Ahl al-Bayt, the family of the house - that means the family of the Prophet.

And we find their names on the alam here in the British Museum. There's the prophet Muhammad himself, his daughter, Fatima, and his son-in-law, Ali, and his grandsons, Hassan and Husain. Indeed, Ali is mentioned three times on this alam. For Shi'a Muslims, Ali was the first imam - or spiritual leader - of the faithful, and this kind of alam is known as the Sword of Ali. Elsewhere on this alam are the names of ten other imams - all descended from Ali and all, like him, martyred. As this alam was carried through the streets, the faithful would see the names of the Prophet, of his daughter Fatima, his son-in-law Ali and of the other imams.

Shiites, then and now, are a minority in Islam. They hold that the office of Imam - infallible religious guide - belongs exclusively to the descendents of Ali, the Prophet's son-in-law. They are the Shi'a Ali - the Party of Ali. By contrast, Sunni Muslims accepted the authority of the Caliph, who by the seventeenth century was the Ottoman sultan in Istanbul. These differing views led to bloody conflict, and a long tradition of martyred Shi'a imams.

Iranian Shiism holds that there are 12 imams altogether, the 11 mentioned on our alam all died as martyrs. The twelfth imam is said to have vanished in 873, and to be still in hiding - he will only be restored by God when it pleases him. The faithful are awaiting his return, and at that point the Shi'i dominion will be established on earth. Until then, the Safavid shahs were the temporary proxy for the hidden imam.

Haleh Afshar, an Iranian-born academic, reflects on the position of Shi'ism in the life and politics of Iran over the centuries, and on its role in both the Constitutional Revolution of 1907 and the Islamic Revolution of 1979:

"Well Shi'ism for centuries was the small part of Islam, which was very different, and a group which were not part of any establishment. In fact they were always in the process of contestation and on the margins. And with the arrival of the Safavids, who declared Shi'ism as the national religion of Iran, we then begin to have the establishment of a religious institution with a hierarchy, and one that has some kind of influence on policy. And that's quite new, in terms of Iranian history. And it is actually a process that has continued through the centuries, and the religious establishment very often has been at the forefronts of revolutions. So for example, [in] the Constitutional Revolution, in which the 'ulema' - religious leaders - were demanding the establishment of a house of justice, and demanded a constitution as a result. And also [in] the '79 revolution, again in the name of justice, which is a theme at the core of Shi'ism."

This heightened sense of justice perhaps has its roots in the very essence of Shi'ism - its focus on victims and martyrs. By the late seventeenth century, when this alam was made, elaborate ceremonial processions, commemorating the deaths of the martyrs, featured chain-swinging flagellants, rhythmic movement, music and chanting. And this points up the paradoxical nature of the British Museum's alam. Sword-like in form and name, and at first sight triumphalist and aggressive, it was in fact used in ceremonies to commemorate defeat, suffering and martyrdom.

Present day alams are sometimes enormous. No longer a single blade of metal, they are now often great structures, covered in decorated cloth, which can span a whole road's width. And yet they're borne by one man. Men privileged to carry alams perform great feats of strength, and they need special training.

And, to the sound of music, this is how they train. Men swing giant wooden clubs around their shoulders, accompanied by slogans and tragic songs honouring the Shi'a martyrs. This is a traditional ritual Iranian workout, and we're in a 'zurkaneh', a house of strength. But we're not in Tehran, we're in north-west London, where men are trained both physically and spiritually in the traditional religious sport of Shi'ism. We spoke to one of the elders of this Iranian community, Hossein Pourtahmasbi, an alam-carrier himself, about how the tradition continues today:

"First of all you have to be a good weightlifter, because that's quite heavy, it sometimes goes up to one hundred kilograms. But it's not a matter of a hundred kilograms of weight, it's balancing and unbalancing the shape of the alam - because it's huge, and it's wide, and you have to be very physically fit for that. And the people are either wrestlers or weight-lifters, and physically strong and well-known by that society. But to be a strong man is not enough, in that community the people have got to know you as well, because it's sort of a tradition to give you admission."

By the time our alam was made, around 1700, this kind of muscular fervour had become a key element of Shi'a ceremonies. The tolerant equilibrium of Shah 'Abbas was abandoned by his successors, and the last Safavid Shah, Husayn, was harshly intolerant of non-Shi'ites. It may have been this religious repression that contributed to his downfall. In 1722, the long Safavid era ended and Shah Husayn was overthrown.

Despite Iran's recent reputation for intolerance, the religious legacy of Shah 'Abbas is still evident in the country today. The state is of course officially Shi'a, but the Armenians still worship in their cathedral, and Christians, Jews and Zoroastrians are all free to practise their religion in public, their rights enshrined in the constitution.

In the next programme, I shall be asking the same question as I asked at the beginning of this one - can a state hold more than one faith? I shall be looking at how the Islamic monarchs of Mughal India contrived to rule a population that contained not just Muslims but Hindus, Sikhs and Jains. And I shall tell the story in miniature . . . with a painting.