Another important task before Muhammad was to determine and clarify the relations between the various tribes and the Muslims in Medina. The Jews were a considerable power in Medina. It appears that they were Arabs by descent, but formed a distinct unit by reason of their adoption of Judaism. They were subdivided into three clans, the Banu Qainuqa, Banu Nazir and Banu Quraiza. The other inhabitants of the town were the Aws and Khazraj, always at war with each other. Of the two chief clans of the Jews, the Quraiza were the allies of the Aws, while Banu Nazir joined the Khazraj. Now it so happened that the major portion of the Khazraj and Aws embraced Islam. So Muhammad concluded a pact with the Jews, known as the "Covenant of Medina"(mithaq-i-Medina), whose terms were as follow:- Firstly, the Muslims and Jews shall live as one people. Secondly, each one of the parties shall keep to its own faith, and neither shall interfere with that of the other. Thirdly, in the event of a war with a third party, each was bound to come to the assistance of the other, provided the latter were the pary aggrieved and not the aggressors. Fourthly, in the event of an attack on Medina, both shall join hands to defend it. Fifthly, peace, when desirable, shall be made after consultation with each other. Sixthly, Medina shall be regarded as a sacred by both, all bloodshed being forbidden therein. Seventhly, Muhammad shall be the final court of appeal in cases of dispute.
James A. Michener writes in "Islam: The Misunderstood Religion" (New York, 1955, p. 68) that, "Muhammad thus became head of the state and the testimony even of his enemies is that he administered wisely. The wisdom he displayed in judging intricate cases became the basis for the religious law that governs Islam today."