Tafsir
A famous letter sent by 36 Islamic scholars to Pope Benedict XVI addressed this verse:
"this verse is acknowledged to belong to the period of Quranic revelation corresponding to the political and military ascendance of the young Muslim community. ‘There is no compulsion in religion’ was not a command to Muslims to remain steadfast in the face of the desire of their oppressors to force them to renounce their faith, but was a reminder to Muslims themselves, once they had attained power, that they could not force another's heart to believe. There is no compulsion in religion addresses those in a position of strength, not weakness. The earliest commentaries on the Qur'an (such as that of Al-Tabari) make it clear that some Muslims of Medina wanted to force their children to convert from Judaism or Christianity to Islam, and this verse was precisely an answer to them not to try to force their children to convert to Islam."
Read more about this topic: Al-Baqara 256