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Is the material being distributed by students or by outsiders that have come onto the campus in connection with the events? The first step is to follow up on who is behind the material.
What seems to you to be 'inappropriate' about the content? Identify those features that are unacceptable to you.
Is it in danger of violating the law about inciting hatred, violence, or glorification of terrorism?
Is it contributing to a destructive atmosphere?
Consult any relevant existing university policies for guidance and precedents.
Know your limits: you might like to clarify your boundaries by using this tool or set your own personal limits.
Consider developing a new 'policy' on the issue, if needed, on the basis of your definition of limits together with your university's existing policies. In this way any measures you take do not look like an ad hoc reaction that have targeted one group prejudicially, and you can demonstrate fairness across the board.
If you have good relationships with Muslim student representatives or groups on campus, consult them for their views: not only on the content of the material, but also on its impact on them.
Meanwhile, if you have good relationships with community contacts it is worth getting their opinion or assessment on the material and its likely impact. They may have some more constructive or imaginative solutions beyond the 'Either/Or' of 'ban or tolerate'.
Whichever decision you decide to implement, make sure that you sustain good relationships with the students and the off-campus contacts. Their involvement and support will be vital in implementing and sustaining change.