Most Muslim scholars are of the opinion that Muslims should not greet non Muslims with the words "Assalaam Alaikum" (i.e. 'peace be on you' and 'may you live in safety'). However, the reason for this opinion seems to be that firstly, the words "Assalaam Alaikum" were promoted by the Prophet (pbuh) specifically as a mutual greeting among Muslims only and secondly, in one of the narratives ascribed to the Prophet (pbuh), it is narrated that the Prophet (pbuh) directed the Muslims to respond to the greetings of the Jews with the words "Wa Alaikum" (i.e. 'and on you too') only.

Muslim scholars, in view of these narratives, are of the opinion that the words Assalaam Alaikum, should not be used as greetings for non-Muslims and should be restricted to greeting other Muslims only. Nevertheless, an analysis of the referred narratives ascribed to the Prophet shows that none of these narratives provides a sound basis for holding the opinion.

As far as the first among these narratives is concerned, it obviously does not prohibit greeting non-Muslims with the referred words. The fact that the Prophet directed the Muslims to mutually greet each other with some specific words does not by itself prohibit the Muslims to greet non-Muslims with the same words. Furthermore, a study of the second category of narratives shows that the Prophet (pbuh) directed the Muslims to respond to the greetings of the Jews with the words Wa Alaikum only because of the reason that the Jews, while greeting Muslims, rather than saying Assalaam Alaikum, would twist their tongues and say "Assaam Alaikum", which literally meant death be upon you all. In response to this cursing of the Jews, there were incidents where Muslims had started cursing back at them. The Prophet actually discouraged the Muslims from cursing the Jews, even if that was in response to their cursing them. The Prophet advised the Muslims to use such words in response to the greetings of the Jews that would only return their own greetings/cursings upon them. Thus, the words Wa Alaikum, which literally meant "the same (blessing/curse) be upon you too".

In your question, you have mentioned that in my answer, I should also give consideration to the verse Al-Furqaan 25: 63. The referred verse in my opinion does not relate to the issue under consideration. The verse, on the contrary, directs the Muslims to gracefully avoid entering into heated arguments with ignorant and haughty people. The word Salaam in the referred verse implies the graceful avoidance that the Muslims have been advised.

In view of the above explanation, it may be derived that the Islamic Shari`ah does not prohibit the Muslims to greet non-Muslims with the words Assalaam Alaikum. However, it may be of interest to note that the Prophet (pbuh), at the end of his ministry opted to avoid using these words while greeting other than those, who had accepted faith. The reason for this avoidance is also easily determinable if one is aware of the position of a messenger of God (especially with reference to the removal of all excuse of rejection) as well as the meaning of the words Assalaam Alaikum.

As far as the meaning of the words Assalaam Alaikum is concerned, it has already been explained that it is, in essence, a supplication in favor of the addressees. When a person greets another with the words Assalaam Alaikum (literally meaning 'peace be on you', or 'may you be in safety'), he actually offers his prayers of peace and blessings for the addressees for the life of this world as well as the hereafter. We know that the Qur'an has directed the Prophet as well as the Muslims to offer any prayers for the polytheists. In view of this directive of the Qur'an, the Prophet as well as the Muslims avoided greeting the non-Muslims - especially the polytheists - with the words Assalaam Alaikum and in place of that greeted them with the words 'Salaamun `alaa mun ittaba`a al-Hudaa' (literally meaning peace be on him, who follows the guidance).

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