It clear he is making a threat. Either the ragheads build the mosque on that spot or there will be big trouble in the form of attacks on us.
The response needs to be “Go and f*ck yourself and the Camel you rode in on”. These asswipes will see any conciliation to what they want as a weakness and will then increase their aggressiveness.
This is why we start by burning a few korans then seeing if they up the stakes. This is a war, folks. Are we going to succumb to terrorist threats?