Leaflets circulated in multi-racial areas of the city over a period of several weeks contained vicious slurs on black people and called for them to be subjected to an Islamic jihad.
The literature, which called on Muslims to "break their bones in the name of Allah" led to spiralling racial tension in the Normanton area of the city. Police had to intervene in a stand-off involving several hundred Afro-Caribbeans and Asians outside a pub last month.
Derby city council has been so shocked by the language in the leaflet and its effect on race relations that it is drawing up its own document to counteract it.
The council has set up a working party, which includes leading figures in the black and Asian communities, to restore the good relations which had previously existed in the city.
Police who are anxious to prosecute the authors of the leaflet under the Public Order Act, now believe that it is the work of non-Muslims attempting to stir up racial unrest.
Muslim leaders, who have denounced the document, said it contains basic errors in phraseology and language which would not have been made by a genuine fundamentalist.
In particular, it wrongly uses the expression "superior", which even the most extreme Muslim groups only use as a reference to Allah. It also refers to black people as slaves, despite the fact that there are millions of black muslims in the world.
Inspector John Stamp, of Derby police, said: "We have been advised that there are religious and factual inaccuracies that would tend to suggest that it has not been written by someone who knows their facts about the Muslim religion."
He added: "We are taking the stance that it is a document which is being used to cause offence and lead people to take umbrage against the Muslim religion, thinking it has come from them."
Although leaders of all communities have worked hard to dispel people's fears, Inspector Stamp admitted that the leaflet had succeeded in provoking increased tension.
Lindsey Stewart, a Normanton pub landlord who witnessed the stand-off, said: "It has damaged my trade and frightened away many of my white customers."
When the leaflet appeared, suspicion had fallen on the Hizb-ut-Tahrir, a fundamentalist group which had been recruiting at the Derby College Wilmorton and was being monitored by police special branch.
The H-u-T, which is banned from many British university campuses, has been denounced for its anti-semitism and once called for the assassination of John Major.
Muslim youths have recently clashed with Sikh gangs in Southall and Slough, to the west of London. But there is no history of tension between the Muslims and Afro-Caribbeans.Reuse content