(Adds Stations of the Cross performance, paragraph 16)

By Philip Pullella

SYDNEY, July 18 (Reuters) - Pope Benedict called for all religions to unite against terrorism and resolve conflicts peacefully on Friday and heard an Islamic leader urge Christians to overcome "misconceptions and prejudices" about Muslims.

"In a world threatened by sinister and indiscriminate forms of violence, the unified voice of religious people urges nations and communities to resolve conflict through peaceful means and with full regard for human dignity," Benedict told an meeting with Muslims, Jews and members of other non-Christian faiths.

The pope, in Australia for the Church's World Youth Day, also said the Catholic Church was open to learn from other religions, a comment seen in the context of moves to improve relations with other religions, particularly Islam.

"The Church eagerly seeks opportunities to listen to the spiritual experience of other religions," he said.

Catholic-Muslim relations nosedived in 2006 after Benedict delivered a lecture in Regensburg, Germany, that was taken by Muslims to imply that Islam was violent and irrational.

Muslims around the world protested and the pope sought to make amends when he visited Turkey's Blue Mosque and prayed towards Mecca with its Imam.

Sheikh Mohamadu Saleem, executive member of the Australian National Imams Council, told the pope: "Muslims should become more inclusive and universal in their understanding of their religions.

"At the same time, significant segments of the Christian and other religious communities should overcome their misconceptions and prejudices of Islam and Muslims," Saleem said.

"If Muslims, Christians and other faith communities reach out to one another and build bridges rather than erect barriers, the whole of humanity will rejoice forever."

THE STING OF REGENSBURG

After the fallout from the Regensburg speech, 138 Muslim scholars and leaders wrote to the German-born pontiff and other Christian leaders last year and in March, the Vatican and Muslim leaders agreed to establish a permanent official dialogue, "The Catholic-Muslim Forum" to improve often difficult relations.

Saleem said he agreed with youths at the meeting in Sydney who have been saying "Let us promote fundamentalism of love, instead of fundamentalism of hatred".

Asked by a reporter after the meeting if the sting of the pope's Regensburg speech was still there, Saleem said: "It is unfair to call Islam a violent religion."

Relations between Australia's small Muslim community and the largely Christian population have been strained since the Sept. 11, 2001 attacks in the United States and the Iraq War, with Australia only recently withdrawing its troops from Iraq.

Race riots erupted at Sydney's Cronulla Beach in December 2005 as locals attacked anyone of Middle East appearance, believing they were Muslims intent on "taking over" their beach.

In late 2007 two pigs' heads were rammed on to metal stakes and an Australian flag draped between them on the site of a planned Muslim school on Sydney's outskirts. The plan was abandoned after protests by thousands of residents.

Late on Friday, the pope watched as several hundred young actors performed a live version of the "Stations of the Cross," which re-enacted the final hours in Christ's life, including his crucifixion.

Vatican spokesman Rev. Federico Lombardi told reporters the pope was very happy with the reception he has received in Australia. (Additional reporting by Michael Perry; Editing by David Fogarty and Alex Richardson)

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