To say that it's contradictory to believe in a God of mercy, and to also believe that this God of mercy can condemn people to hell, is a shallow contention, intellectually. The true theological "tension" is a belief in a God of mercy, and a belief in a God of justice -- justice requiring punishment.
It's only because God's justice has been satisfied in Christ's death that anyone can experience God's mercy. There is no reason for anyone to be consigned to hell, not with the provision and the price that God himself paid on our behalf. As C.S. Lewis wrote in numerous places, the only reason people end up in hell is that they choose to end up there. (Read "The Great Divorce.")
So everyone who was born a Muslim, lives in a Muslim country, lives as a good Muslim their whole lives having very little contact with non-Muslims, and dies a Muslim (denying Jesus is the Son of God), has CHOSEN to burn in Hell?