Governor David Paterson of New York offered to grant Islam a favored status under New York public policy that is denied to Christian churches. Paterson offered state property to establish the Islamic Victory Mosque at Ground Zero.
The First Amendment only prevents Congress from the “establishment” of religion, by which the Founders meant granting one Christian denomination preference in law and directing taxes to its support.
This means, of course, that states are free to “establish” a state religion if they wish, meaning they remain free to select one Christian denomination and give it official preference in law. At the time of the founding, nine of the 13 original states did in fact have an established church, that is, one Christian denomination that was the official church of that state.
Fortunately, all of the states had abolished a religious establishment by 1833, but they remain constitutionally free to do so if they wish.