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|Turning towards Mecca|
In the pre-Islamic paganism of Mecca, Allah was one god among many, but was the chief of the pantheon. But beneath him were various subordinate deities, including his daughters Allat, Manat, and Al-Uzza. Muhammad rejected the worship of these other deities, insisting upon the worship of Allah alone. This rejection upset many of the people of Mecca who were accustomed to worshipping these other deities.
The implications are very strong for Islam. If true, the tale implies many things - that at one point, Muhammad was bending to local polytheist pressure, that not all of Muhammad's revelations were divine, and thirdly Allat, Manat, and Al-Uzza were all feminine, which is important in such a patriarchal religion as Islam. Muslims are also vehement in claiming Allah has no offspring, not Allat, Manat, and Al-Uzza, and certainly not Jesus, who they consider a prophet, not a part of divinity. It may have been a political expediency as well, perhaps Muhammad trying to curry favour with the local Quraysh tribe who controlled Mecca, and the shrine of the Ka'aba.
It also implies that for at least some of the Quran, Muhammad was winging it.
According to the tale, Muhammad sought to appease the Meccans, and so announced the following verses as part of the Qur'an, endorsing prayer to Allah's daughters:
- Have you thought upon Allat and Al-Uzza,
- And Manat the third, the other?
- These are the exalted gharāniq [?cranes]
- Whose intercession is most sought after.
The original text--assuming that the Satanic Verses were indeed a historical occurrence--would have read:
- أفرأيتم اللّـٰت والعزّى
- ومنـٰوة الثالثة الأخرى
- تلك الغرانيق العلى
- وإن شفاعتهنّ لتُرتجى
The word gharāniq is obscure in this context. It does not appear elsewhere in the Qur'an, and appears to mean "crane" or some other form of bird. The implication is that they are able to rise up to Allah.
The people of Mecca were most pleased to hear that Muhammad had approved of the worship of the daughters of Allah in his revelation. However, Gabriel then appeared to him and rebuked him, telling him that these verses came not from God but rather from Satan.
In their place, Gabriel revealed a new passage (which still exists in the Quran to this day) condemning their worship (Qur'an 53:19-23):
- Have ye thought upon Al-Lat and Al-'Uzza
- And Manat, the third, the other?
- Are yours the males and His the females?
- That indeed were an unfair division!
- They are but names which ye have named, ye and your fathers, for which Allah hath revealed no warrant. They follow but a guess and that which (they) themselves desire. And now the guidance from their Lord hath come unto them.
Making Muhammad look bad
This tale was repeated by a number of early Muslim writers, apparently without thinking that it made Muhammad look bad. However, it would seem that someone who receives revelations from Satan cannot be a true prophet. For that reason, contemporary Muslims reject the veracity of the account. Muhammad himself claimed that all prophets were tested by Satan and inspired with demonic verses that appeared to come from God as he was. Still skeptics wonder if more of the Qur'an could be from Satan. 
Early non-Islamic scholars argue that the story is interesting, partly because criticism of Muhammad was (and in some places, still is) punishable by death. Thus it is extremely unlikely that Muslims would make up such an unflattering story about him. Unlike certain other unflattering tales about Muhammad, this one almost certainly originates in the Islamic world.
It has been argued that the Quran and Muhammad inherited a number of non-Judaeo-Christian influences from their local Arab environment and that the Satanic verses point to more possible pagan influences on Islam. Some claim that Allah is a relic moon god and point to this as the reason for Islam's current use of the crescent as a symbol (despite the facts that the word "Allah" simply means "god" in Arabic, and that the use of the crescent is most likely related to Islam's use of the lunar calendar for determining festival dates). There are certain syncretistic elements in Islam.
Islamic scholars argue, with some good reason, that the tale is probably spurious. It is not well attested.
It has also been suggested to come from crypto-polytheists, i.e. Bedouins who continued practising their polytheism under Islam. Since the Quran means Recitation and is supposed to be read out loud, critics claim that the polytheists would chant this, while the official verses were being said, to avoid offending the old goddesses.
The novel The Satanic Verses by Salman Rushdie is named after this incident of Islamic history. Its reference to this incident is part of the reason why some in the Muslim world condemned it so violently.