"Religious liberty is a fundamental expression of human liberty and that the active presence of religion in society is a source of progress and enrichment for all. This assumes, of course, that religions do not seek to exercise direct political power, as that is not their province, and it also assumes that they utterly refuse to sanction recourse to violence as a legitimate expression of religion."
-Pope Benedict XVI
It is odd to see the Vatican waving the flag for liberalism. It was not all that long ago that Rome was fairly sure that political liberalism was the death of Christendom, a mark of the decline and decadence of Christian society and a sure path to immorality. Even as recently as the Second Vatican Council, when the Church threw open its doors to the world, its statements on religious freedom and politics were ambiguous, as many of the Bishops took advantage of the illness of the American Jesuit theologian John Courtney Murray to tone down the strongest of Murray's proposals which he had outlined in the initial drafts. Many still felt the Church should not surrender the idea of the Catholic state and completely capitulate to liberalism.
Now under Ratzinger-turned-Pope (and this tendency was already present in Ratzinger before he became Benedict XVI) liberalism is itself the legacy of Christendom: to be European, to be Christian, and to be politically liberal go hand in hand. This was a mistake John Paul II never made: as much as he fought against Communism, the social teachings of JP2 remained critical of the Euro-American capitalism-liberalism political organization. Benedict XVI on the other hand, who seems to have forgotten that he is a political figure and not simply a religious one (I understand the Vatican is small, so maybe he just forgot it was a state, even if he is in charge of it), now instructs Muslims on religious freedom, reminding them that religion and politics are two different spheres. Maybe he is considering giving up the Vatican's seat at the U.N., though I seriously doubt it. So, not only is it hypocrisy, but it is hard to find justification for such a position in contemporary Catholic thought which insists so strongly that humanity finds itself, always and everywhere, in a relation with God, finds itself graced. One does not cease to be religious just because one has entered into political action. This is not to say that religious freedom has no place in Catholic thought. Ideally it always has (though let us be honest and admit that Islam did a much better job of tolerating religious diversity during its time in Europe than did their Christian contemporaries and immediate successors). But the separation of faith from politics is a dead faith and a blind politics. Politics will always be religious insofar as it attempts to ask 'what is the Good?'; and when politics ceases to be able to ask that question it becomes the enemy of the human soul.