Robert Spencer, director of Jihad Watch, points out this phrase is simply saying that Muslims are monotheistic.
No, it clearly states that "together with us they adore the one merciful God". If it were merely stating that Muslims were monotheistic but that the one god they adore is not the one, merciful God, then it wouldn't say "together with us".
This teaching is completely in line with the new religion of Vatican II: ecumenism. The JPII Catechism specifically references the Vatican II documents, Nostra Aetate and Lumen Gentium.