@Jkam24 - I can appreciate that as a fellow teacher you do not want to get the teacher into trouble, but I think by reporting it to the head, in a non-complaint way, you will actually be doing her a favour.
If she says something similar to a Jewish or Sikh child, it could land her in some serious trouble (I am assuming that someone with the naivity to say what she did probably doesn't have a grip on the subtleties and differences between religious and ethnoreligious).
Also, if she were to say it to another Muslim or Christian (or any other religion) child whose parents were not as understanding as you, she could end up with a facing some serious consequences and potential abuse!
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On a separate note, I am astounded at the number of people who were telling you not to even bother going to have the conversation.
I was a little older (about 7) when we moved house from a town to a small village with a one form entry, small class school. We moved onto a housing association estate the house came with my dad's new job as a caretaker. My parents got a local decorator in to do some work and he happened to be the husband of my new teacher.
I was quite excited by this and the next day at school said to the teacher "Your husband is decorating my house" in front of the rest of the class.
She apparently took great offence at this and loudly called me a liar in front of everyone, claiming that her husband was working away. As a punishment I was made to sit in the corner.
Naturally this upset me a lot and I of course told my mom as soon as I got home who immediately went down the school to confirm what had been said and have words with the teacher - I can't recall the outcome, but it turned out that this teacher was basically a snob who looked down on anyone who lived on the estate and thought they were all stupid. I was an advanced reader when I moved schools and was already a free reader, but again, I wasn't believed and she put me back down to Village with three corners books, because she didn't think anyone who lived on the estate could possibly be a free reader at 7. After yet another complaint from my mom, she left me alone - never let me join the choir or any extra-curricular activities she ran though!
I dread to think how horrendous my time at that school would have been if my mom had done what many here were advising the op to do and ignore the concerns.
That teacher never changed - there was an incident a few years later when a young lad from the estate, whose dad had died very suddenly, was taken to school by his nan. He was, understandably, very clingy to her, and the same teacher made some vile comments to him about being a baby!