Pilot research on community conflict resolution, conducted in a local government area in southern Sydney in late 2006, revealed paradoxical findings: the simultaneous presence of both high levels of cross-cultural mixing and appreciation of the area's culturally diverse population; and the prevalence of prejudice against Arab and Muslim residents and visitors to the area. Many respondents, who supported cultural diversity, saw Arab and Muslim Australians as an exception and even a threat to harmonious community relations. Particularly striking was the anxiety and anger caused by their apparent large numbers, seen to be taking over certain public recreational spaces. This paper explores the contradictions in these findings in light of other contemporary Australian research and identifies complex and difficult issues to be addressed by research and by local government. In particular, the paper discusses the need to address the interconnections between both everyday multiculturalisms and everyday racisms, to distinguish between ‘victim’ claims amongst diverse communities, and to ground research and policies on ‘place-sharing’ in Indigenous sovereignties.