My wife and I wish to give a gift to parents of a newborn for their child. They are very observant Muslims, and I work with the father. I'm not sure what might be inappropriate.
When it comes to newborns, a universal language transcends borders and faiths; hardly anything is inappropriate. Stuffed animals, music boxes, clothing, mobiles for a crib, or a gift certificate to a diaper service or for disposable diapers would be much appreciated. Not to be overlooked are picture frames that the proud new parents can use for photos of their infant. And don't forget those all-purpose gifts that no new parent would turn up their nose at: cash (say, $35 to $40) and an offer to sit for the baby. No matter what faith parents may subscribe to or how observant they might be, almost everyone can use some extra money when a child is born (or money for the child's college fund), and every couple can use some time to themselves.
By the way, if you're close to the parents, you might get an invitation to attend an akikah, a welcoming ceremony for a newborn. This isn't held for every child, so don't feel slighted if you don't hear about it. Akikahs are usually held in the home of the family or at their mosque. If you attend, dress casually--say, slacks and a sports shirt, but no jeans. Your wife can wear a scarf over her head and a dress--or skirt and blouse--that covers her arms. Her skirt hem should reach below her knees.
Unlike a service at a mosque, where worshippers sit on the floor, people attending an akikah sit on chairs. Usually, a family member says a few words about the newborn; this is followed by a small reception (with no alcoholic beverages) and possibly dancing and/or music. A traditional greeting to the family is "Mahbrook" (pronounced: "MAH-brook"), which means "Congratulations."