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Guests at the annual mayoral Iftar dinner included the developer of the controversial Islamic center and mosque planned for Lower Manhattan, and Muslims who lost loved ones on September 11, 2001.

Bloomberg told his guests that New York has a tradition of cultural and religious tolerance, and discriminating against any house of worship is a betrayal of American values.

"There is nowhere in the five boroughs of New York that is off limit to any religion and by affirming that basic idea we will honor Americas values and keep New York the most open, diverse, tolerant and free city in the world," said the mayor.

Bloomberg also backed the center's imam, Feisal Abdul Rauf, who once deemed the United States an accessory to the September 11th terror attacks.

While that comment has drawn international scorn, the mayor said other remarks more reflective of Rauf's work have gone unnoticed.

"At an interfaith memorial service for the martyred journalist Daniel Pearl, Imam Rauf said, quote, ‘If to be a Jew means to say with all one's heart, mind, and soul: Shma Yisrael, Adonai Elohenu Adonai Ehad; Hear O Israel, the Lord our God, the Lord is One, not only today I am a Jew, I have always been one,'" Bloomberg said.

Afterwards, Park 51 project developer Sharif El-Gamal along with Rauf's wife, Daisy Khan, expressed appreciation for the mayor's continued support.

"He touches my heart every time I get to hear his issues on our rights as Americans and his brave and unwavering statements that are continued over and over again," El-Gamal said.

"I was almost in tears," Khan said.

The gathering took place just hours after Governor David Paterson and Archbishop Timothy Dolan met to discuss the proposed Islamic center and mosque.

Both leaders are calling for mutual respect on both sides of the contentious debate. They're also asking the developers to recognize the sensitivity of the site.

"What we need, I think, the two of us said is not to be in one another's faces, but to kind of step back and take a sane look at things. What we do not need are protests but promoters, promoters of dialogue and civility," Dolan said.

"We're making an appeal. We're not telling anyone what to do with their rights. We don't do that in this country. We're making an appeal. And should they ever determine that they would like to have that conversation I'd remain available," said the governor.

Paterson has previously offered state assistance to the project's developers if they want to move.

Assembly Speaker Sheldon Silver -- whose district is near the proposed site -- says he recognizes the freedom of religion, but also believes the ongoing debate has released "turmoil."

"They have a right to build a house of worship. And what I am suggesting is that in the spirit of living with others they should be cognisant of the feeling of others and try to find a location that doesn't engender the deep feelings that currently exist," Silver said.