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Well, first of all look at what that verse ACTUALLY says, and not what your Muslim friends like it to say. The kafirun are described as those who DISBELIEVE, and it says it does not matter if these are Jews, Christians (the "people of the Scripture") or the polytheists.
By "disbelieve" the text means they do not accept Islam. I will show that later by looking at some of the other references of "kafir" in the Quran.
First, let me point out that your Muslim friends suggests the OPPOSITE of what the Quran says.
Point out if you "disbelieve" something then you are honestly and truthfully, and in all conscience, convinced that this thing you disbelieve is false. At the very least, you have reached that conclusion by examining the claims made.
It does not matter if you made a mistake, your disbelief is a judgement you have come to after having considered the issue. Your daughter comes home with a "hicky" (or "love bite") on her neck. She says "I walked into a door." You will most likely NOT believe that. And that is because you realise that is highly unlikely. You MAY of course possibly be wrong, but it is your honest conclusion that this cannot be right.
The Muslim dude said the word kafir here refers to the people who rejected islam even after knowing the truth
Sorry, that simply cannot be correct. Someone who rejects Islam even "after knowing the truth" would be someone who believes in Islam, but does not acknowledge that belief. This is simply not what the text says.
Here it is spelt out in a different way:
But they who disbelieve (wa'llazina kafaru), and deny Our revelations
, such are rightful Peoples of the Fire. They will abide therein (2:39).
"Our revelations" are the words Mohammed presents as the Word of God. It does not say deny these "revelations" while being sure they are true. The Qur'an in effect condemns people to everlasting hell for an honestly held conviction, i.e. that Mohammed was a fraud.
The Qur'an makes this very plain when you look at this:
They surely disbelieve (la-gad kafar 'llazina) who say: Lo! Allah is the Messiah, son of Mary. The Messiah (himself) said: O Children of Israel, worship Allah, my Lord and your Lord. Lo! whoso ascribeth partners unto Allah, for him Allah hath forbidden paradise. His abode is the Fire. For evil-doers there will be no helpers ( 5:72).
What is being condemned here: the belief, honestly held by almost all Christians, that Jesus was divine. This includes all and any Christians who do not know what Mohammed taught about that. Again, the Qur'an does not talk about some dishonest denial, but clearly about an honestly held belief.
Perhaps one question for your Muslim friend would be be "Why does a just and merciful God punish people for honestly held convictions?" Ask him, if someone wrongly, but honestly believed that your Muslim friend is really his next door neighbour, does that mean such a person should be eternally punished?
I can, however also see where your friend got this idea from... A kafir literally means a person who "covers (something) up". This suggests some kind of dishonest action, of the kind your Muslim friend suggests. But then, if you look as how it is used in the Qur'an it clearly condemns those who merely hold different religious beliefs to Muslims. In the end the definition of a "kafir" amounts to anyone who does not accept Mphammed's teachings, as the Qur'an clearly points out, in the two verses I mentioned (and elsewhere).
As to "covering up"... Muslims are free to preach and practice their beliefs in any Western country, but in many Muslim countries people from other religions have severe restrictions placed on them. It is a criminal offence in almost all Muslim countries to give to a Muslim any literature about Christianity, for example. So who is actually doing the "covering up"?