(See school prayer
for other comments)
In the USA, prayer IS allowed in public schools. Nobody is (or at least should be) stopped from sitting there in the morning and praying, or doing it at lunch, or between classes. And if extracurricular organizations are allowed, they can just as easily form a prayer group to meet after school or the like.
What's not allowed is school-led, organized prayer. You can't have officially sanctioned prayer, as that leads to endorsement of a certain religion, and the idea that it's better to be religious. If you allow student-led prayer during a non-voluntary activity, then you're allowing the majority rule religion. Peer pressure is a horrible thing, and putting them in a situation where you have to actively choose to not participate, or not even be allowed to choose, then it's still showing some sort of endorsement.
It's a problem when you have a captive audience, allow one group to do a prayer, or something similar, and let that group always do it because they're the majority. I think the best rule to determine if it's acceptable is to imagine that it's all about something you totally disagree with. Sure it seems ok to pray to Jesus, but would you stick up for it if the prayer was to Vishnu? Or was a statement about the evils of religion? Would you mind standing there and watch all the others around you join in a prayer to Satan?
It likely wouldn't be a problem if it was truly free of coercion, never alienated anyone, and was fair to everyone. But instead of trying to navigate such difficult area, why not just not have it?