Firstly, suicide itself is never condoned in Islam. Taking one's own life is a big no-no:
Destroy not yourselves. Surely God is ever merciful to you. Qur'an 4:29
Secondly, there are instructions in the Qur'an that specifically prohibit terrorism (i.e., the killing of non-combat forces in battle, and by extension, in peace), and that promotes non-violence:
Whosoever kills an innocent human being, it shall be as if he has killed all mankind, and whosoever saves the life of one, it shall be as if he had saved the life of all mankind. Qur'an 5:32
Be quick in the race for forgiveness from your Lord, and in the race for a garden wide as the heavens and the earth, prepared for the righteous- (the righteous are) those who spend whether in prosperity or adversity, who restrain anger and who pardon all people. For God loves those who do good. Qur'an 3:133–134
Invite all to the way of thy God with wisdom and beautiful preaching. And argue with them in ways that are best and most gracious. For thy God knows best who have strayed from his path and who receive guidance. And if you do respond to an attack, respond no worse than they did. But if you show patience, that is indeed the best course. Be patient- for your patience is from God . . . Indeed, God is with those who restrain themselves and those who do good. Qur'an 16:125-128
O You who believe! Stand out firmly for justice, as witnesses to God, even as against yourselves, or your parents, or your kin, and whether it be against rich or poor, for God can best protect both. Follow not the cravings of your hearts, lest you swerve, and if you distort justice or decline to do justice, verily God is well acquainted with all that you do. Qur'an 4:135
To those who persevere in doing good is a reward more than in measure. No darkness nor shame shall cover their faces. They are companions of the garden where they will live forever. But those who have earned evil will have a reward like evil. Humiliation will cover their faces. They will have no defender from God. Qur'an 10:26-27
The recompense for an injury is an injury equal thereto (in degree), but if a person forgives and makes reconciliation, his reward is due from God, for God does not love those who do wrong. But indeed if any do help and defend themselves after a wrong done to them, against such there is no cause of blame. The blame is only against those who oppress men with wrongdoing and insolently transgress beyond bounds through the land, defying right and justice, for such there will be a penalty grievous. Qur'an 42:40-43
Thirdly, it is important to point out that suicide attacks are not a Muslim invention. See this for an informal introduction to the history of suicide attacks.
Finally, has there been Islamic suicide attacks before the use of the terror tactic (unfortunately, in the name of Islam) in the Holy Land, which started a only a few decades ago? If there has been consistent use of suicide attacks by Muslims throughout the 1400 year history of Islam, then one may claim that suicide attacks are condoned by Islam (whether wars conducted in the name of Islam are justified or not is a different story --wars are not equivalent to suicide attacks, but that will have to be addressed in another thread*). But the fact remains that suicide attacks in Islam is a very modern phenomenon, that is increasingly being used by Islamist terrorists.
Watch this portion of a debate between Dinesh D'Souza and Constitutionalist Republican nominee for President Rep. Ron Paul of Texas (as well as Larry Abraham and Doug Casey) at the Freedom Fest 2007 (specifically, see minute 7 onwards). I think the Congressman has it exactly right. But note that his explanation does not approve of terror tactics. It only explains what motivates the terrorists. The whole thing can be found here. This is a very interesting debate to watch.
And this discussion between Congressman Paul and Michael Scheuer is also very relevant to what motivates the extremists. It was a follow up of a Republican Party debate that preceded by a few days.
Related to this topic are the article's found at the Minaret of Freedom, and the website Muslims Against Terrorism.
The moral of the post:
(1) Terrorists who use Islam to justify their terror crimes are abusing the message of the Qur'an. They will use language taken out context from the Qur'an, and ignore the verses and arguments provided above that proves them dead wrong.
(2) There are those in the West who believe that the blame should entirely be placed on Islam as the core evil. To prove this, they essentially commit the same mistake that the terrorists fall into, which is to ignore the verses and guidelines from Islamic jurisprudence that clearly indicate that terrorism can not be condoned by Islam. I believe they do so out of sincere ignorance of Islamic theology. By blaming Islam, they may alienate a lot of "moderate" Muslims (alienating them does not imply that they themselves become terrorists; on the contrary, they may be less interested in helping in the war on extremism, which is, I believe, what we observe among many moderate Muslims today). However, by noting the above evidence and using it, those who want to fight the War on Terror can instead use Islam to fight the jihadis ideologically by showing them that their tactics are not justified. This does not rule out the option of taking action against criminals and terrorists who commit terror crimes.
* Since I brought this issue up, the rules of engagement in war were summarized by the Prophet of Islam in this quote:
Stop, O people, that I may give you ten rules for your guidance in the battlefield. Do not commit treachery or deviate from the right path. You must not mutilate dead bodies. Neither kill a child, nor a woman, nor an aged man. Bring no harm to the trees, nor burn them with fire, especially those which are fruitful. Slay not any of the enemy's flock, save for your food. You are likely to pass by people who have devoted their lives to monastic services; leave them alone.
For a brief introduction to Islamic military jurisprudence, see this Wikipedia entry.