While they didn't set one religion of the land, religion was protected from government intervention(the exact opposite of what is going on now). Hell, the letter the liberals misinterpret to attack Christianity actual was supportive of Christianity's place in American society.
To messers. Nehemiah Dodge, Ephraim Robbins, & Stephen S. Nelson, a committee of the Danbury Baptist association in the state of Connecticut.
Gentlemen
The affectionate sentiments of esteem and approbation which you are so good as to express towards me, on behalf of the Danbury Baptist association, give me the highest satisfaction. my duties dictate a faithful and zealous pursuit of the interests of my constituents, & in proportion as they are persuaded of my fidelity to those duties, the discharge of them becomes more and more pleasing.
Believing with you that religion is a matter which lies solely between Man & his God, that he owes account to none other for his faith or his worship, that the legitimate powers of government reach actions only, & not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should "make no law respecting an establishment of religion, or prohibiting the free exercise thereof," thus building a wall of separation between Church & State. Adhering to this expression of the supreme will of the nation in behalf of the rights of conscience, I shall see with sincere satisfaction the progress of those sentiments which tend to restore to man all his natural rights, convinced he has no natural right in opposition to his social duties.
I reciprocate your kind prayers for the protection & blessing of the common father and creator of man, and tender you for yourselves & your religious association, assurances of my high respect & esteem.
Th Jefferson
Jan. 1. 1802.
Yes -- as I understand it, the establishment clause was not intended to prohibit official expressions of a religious nature, but rather to prevent a state church (such as the English Church) from being founded, and also to ensure that minority faiths would be free of harassment. I am sure the founding fathers never intended on the complete removal of prayer or religious displays from public life.
I was pleased that where I teach (a public university) the invocation at commencement was given by a local minister who asked for God's blessings on the proceedings in the name of Jesus Christ. None of my colleagues happened to comment on this (even the militant agnostics).