The guy is a fucking moron, that much is clear. Whether he understands the stupidity of this latest statement, or actually believes it would work, is anyone's guess.
why should it not work? terrorism is done by muslims so fewer muslims = less terrorism
I think your interpretation is too simplistic. Regardless of what you think of muslims, don't you think that divisive attitudes like this could increase radicalisation in muslim communities, along with sympathy for what the terrorists want?
I'm not saying that the terrorists are right or anything, but it seems very short-sighted to want to ban 1.6 billion people from your country because of the actions of a few thousand. I would expect the 1.599 billion who don't want to blow you up wouldn't agree, and some of them might actually decide they do want to blow you up now, for being a dick (not you personally, the West).
Blanket bans tend to have many unforeseen consequences, just look at the drug war. I don't think things are as black & white as you believe.