Delivering the inaugural City of Peace lecture to Newcastle City Council last night, Dr John Sentamu warned that tolerance was in danger of becoming a "negative virtue" resulting in "narrowness" and "oppression".
"Tolerance has become a restricting quality – a grudging 'putting up - with' rather that a positive means of building a caring, peaceful society," he said.
"The problem with this is that it does not give us the means of voicing and dealing constructively with differences.
"We give people private space but do not encourage public discussion and debate on key areas which are seen as 'difficult' such as religion, immigration, the optimum funding for public services.
"In consequence, these areas of difference are thrust into the margins where they do not go away but instead, tend to fester."
The Archbishop pointed to the Government's treatment of religion and the Equality Bill as evidence that Britain had become a less tolerant society today.
"This is symptomatic of a trend which has intensified in Britain over the past fifty years in the name of tolerance. That is, an attempt to remove religion from public life.
"And in the process, tolerance, which is supposed to be the tool to help us deal with difference and disagreement has instead, become a negative virtue – a means of diminishment and marginalisation."
The Archbishop said it was necessary to assert the "rationality of belief in God" and the right for religion to play a part in public life and policy-making in the face of those who were trying to ghettoise religion in a "ferocious and insidious way".
He said tolerance was not enough but that a common vision was needed for society to function and operate effectively.
"This is a vision rooted on (sic) our need for God, our need for each other and recognition of our interrelatedness. We cannot say 'I can do without you', for we all rely on each other for our wellbeing," he said.
"It's not a question of merely 'putting up with' or tolerating each other for this is merely a negative virtue. Unless we are all involved in developing and achieving a new vision, it will not work."
Dr Sentamu went on to say that people could not work together to make communities models of Heaven, reconciliation, love and justice if religion was relegated to the private sphere.
He called for a return to "gracious magnanimity" as a means of tackling differences and building peaceful communities.
"The person who is graciously magnanimous knows that there are times when a thing may be legally completely justified and yet morally completely wrong," he explained.
"A person has the quality of gracious-magnanimity if they know when not to apply the strict letter of the law, when to relax justice and introduce mercy."
He added: "If we remember that life is short, we will not wish to enforce the stern justice, which so often divides people but will wish to deal with people in love, as we hope that God will deal with us."