It is narrated from Hazrat Anas (may Allah be pleased with him) that once a man from the People of the Book came to the court of the Prophet and, greeting the Prophet (peace be upon him), said, "As-Saam Alaikum." Hearing this, Hazrat Umar (may Allah be pleased with him) said, "O Messenger of Allah (peace be upon him)! Shall I not strike off his neck?" The Prophet (peace be upon him) said, "No, but when the People of the Book greet you, you should only reply with 'Wa Alaikum.'"
Hadith Referenceمسند احمد / مسند المكثرين من الصحابة / 13193