Berlin and other German education authorities currently allow a choice between religious teaching by different denominations. Parents may also ask for an exemption from religious instruction and opt for "secular studies" which takes a multicultural approach towards religion.
The court ruled that the federation was not a "religious organisation" as laid down in the laws on non-compulsory religious teaching in schools.
The federation is associated with 10 mosques used by 50,000 members of the city's large Turkish community which make up the majority of Berlin's Muslims. Paradoxically, all sectors of the Islamic community, including Sunni and Shiite Muslims, were behind the ruling that the federation lacked the "clear organisational structure of a religious body".
Safter Cuinar, vice-chairman of the Islamic Parents' Group which collected 25,000 signatures from parents to support the federation's case, said the ruling had more to do with politics than religion and education. The federation is regarded as a political organisation by the German authorities because of its links with Turkey's pro-Islamic Welfare Party, which was banned by the Turkish supreme court last month, despite being the country's largest political grouping. It was accused of trying to end the the country's commitment to secular rule while in government. Agreeing to the federation's demand would have landed the German authorities in a political minefield which would have had an impact on its relations with the Turkish government.
While Islam is taught as part of Turkish Studies offered in a number of other German states, in Berlin it is only taught in mosque schools. Some German politicians believe that offering Islam in schools will help integrate Berlin's more than 26,500 Turkish children. They note that as long as schools are not seen to be sympathetic to Turkish cultural needs, the mosque-based organisations will be more militant in pushing for special dispensations for Muslim children in state schools - including the exemption of girls from sex education, swimming and sports.
Last May a Turkish father won a court ruling that his 10-year old daughter should be exempted from "viewing pictures of naked bodies" during sex education classes, although she was not exempted from lessons. The ruling was seen as a major victory for Muslim parents and, by the education authorities, as the thin end of the wedge.
Wilfried Seiring, head of the education authority, said: "It is becoming more noticeable that fundamentalist groups are seeking more influence in parent meetings".
The federation has vowed to take its battle to the Supreme Court.