I think the school and police handled the situation poorly and should have seen this mess coming, but I also think it is probable the boy's father orchestrated a big prank with not so noble intentions.
One, it is clear, even from the bad pictures, that Ahmed's clock is $20 in stuff from Wal-Mart thrown together. Quite nearly any 14 year old could have made that. If he is a genius, it is not because of alarm clock guts put in a little case.
Two, it's clear, even from the bad pictures, that it's not a real suitcase bomb, and someone with some sense should have figured that out quickly before the kid was ever put in handcuffs or any of that. His clock does look like a caricature of a bomb, but someone with half a clue should have been able to figure out this was some kind of prank right off the bat. That's why I really can't understand how this happened, but it looks like Ahmed's father probably hit the jackpot better than even he imagined.
It would have been interesting to know what the dialogue was that went on when he brought this to school. What did he say when first confronted? What was the response of the first people to see the clock in a box? Unless there was a cop in the classroom with handcuffs, there had to be some kind of exchange before it got to that point.
I really don't think this is a case of Islamophobia. It is being held up as an example of that, but I think the escalation has more to do with the no tolerance policy most every school has towards weapons these days. Kids get in trouble ALL the time for things that are clearly not actually weapons, but that resemble or are a caricature of weapons. That is the world we live in. A white kid would not have gotten an A+ for bringing that to school either, especially post 9/11 and even post the Oklahoma City bombing. That's why it would be really interesting to know what the dialogue was between Ahmed and teachers/school admin and with the police. A white kid would have gotten in trouble for that, but it wouldn't make news at the same level and they wouldn't be getting a trip to the White House, they would just be a prankster, though these days it might get them in legal trouble for communicating threats or some such thing.
Again, the school and police responded like idiots, but there's no way this is worth $15 million. I think the payoff was already probably better than what was planned on given how this took off in national media. It was a pretty crafty social experiment prank, but don't punish people (tax payers) who had nothing to do with it by bringing a frivolous lawsuit. And trying to use it as an example of proof positive Islamophobia is completely flawed because schools + weapons = guaranteed freak out regardless of race.