Is Islam and Democracy incompatible?
Islam gives people free choice to adopt any system of rule that suits them. The Qur’an prescribes two principles of governance—present in successful democracies as well—and leaves the rest to the people to decide: first, ‘adl or absolute justice;  and second, mushawarah, or consultation.  (Indeed the latter principle contains within it the notion of representative government that the West terms democracy.) Yet Islam is flexible, and allows for democracy, monarchy, tribalism and other forms of government as long as they meet the requirements of absolute justice and consultation. 
Here are the verses cited above:
Verily, Allah commands you to make over the trusts to those entitled to them, and that, when you judge between men, you judge with justice. And surely excellent is that with which Allah admonishes you! Allah is All-Hearing, All-Seeing. [Holy Quran Chapter 4, verse 59]
As long as absolute justice and mutual consultation are employed—just as Prophet Muhammad did in developing the Charter of Medina—Islam gives people the power to develop the form of government they choose.
It is worth nothing that due to Islam’s requirements of absolute justice and mutual consultation, by definition Islam rejects theocratic, communist, dictatorial, and fascist rule. Such forms of government inherently are unjust and dismiss consultation.
 Qur’an 4:59.
 Qur’an 42:39.