Historical sources tell us that this verse was sent down in A. H. 6 (Islamic calendar). At the time, Prophet Muhammad was returning to Madinah when he concluded the Truce of Hudaiybiyah with Quraysh.
“Muhammad is the messenger of Allah; and those who are with him are strong against Unbelievers, (but) compassionate amongst each other. Thou wilt see them bow and prostrate themselves (in prayer), seeking Grace from Allah and (His) Good Pleasure. On their faces are their marks, (being) the traces of their prostration. This is their similitude in the Taurat; and their similitude in the Gospel is:
like a seed which sends forth its blade, then makes it strong; it then becomes thick, and it stands on its own stem, (filling) the sowers with wonder and delight. As a result, it fills the Unbelievers with rage at them. Allah has promised those among them who believe and do righteous deeds forgiveness, and a great Reward.” – Quran 48:29
48:29 – ‘Strong against unbelievers’, means that the Muslims did not in any way cowe away or abandoned their faith in Islam, no matter how much the Quraysh were hostile, and persecuted the Muslims. Some of the translations have rendered, ‘severe against unbelievers’, although this translations is not correct. Even if we assume this to be the correct translation, it could not refer to all non-Muslims.
Previous verse (starting from 48:25) to 48:29 speaks of events that occurred in the life-time of Prophet Muhammed (p). When the verses are read in their contextual context, when it says ‘firm against unbelievers’, it only referred to the Quraysh (or other hostile groups in Arabia) who were hostile (Tanwir al-Miqbas min Tafsir Ibn Abbas).
For this statement to be taken literally, it would go against other verses of the Quran to treat non-Muslims with kindness and generosity:
“God does not forbid you, with regard to those who do not fight you on account of your religion nor drive you out of your homes, to treat them with goodness and to be just to them; truly, God loves those who are just.” – Quran 60:8
Sayyid Abul Ala Maududi:
“52 “The Companions (of the Holy Prophet) are hard on the disbelievers”: they are not “wax that the disbelievers may mold them as they like; they can neither be cowed nor purchased by any inducement. The disbelievers have no power to turn them away from the great objective for the sake of which they have joined and followed the Holy Prophet even at the cost of their lives.”
53 That is, “Whatever their hardness and severity, it is only for the disbelievers, not for the believers. As regards the believers they are soft, merciful, affectionate, sympathetic and compassionate. Their unity of aim and object has produced in them love and harmony and complete accord among themselves.” (Sayyid Abul Ala Maududi – Tafhim al-Qur’an – The Meaning of the Qur’an – online source)
Maulana Muhammad Ali:
“27a. The Holy Prophet’s journey to Makkah to perform a pilgrimage with 1,500 of his companions was undertaken on the basis of the vision stated here. In a vision, the Prophet had seen himself and his companions performing a pilgrimage. Convinced of the truth of his vision, he set out with about 1,500 of his companions with the object of performing a pilgrimage.
The Makkans, however, opposed him at Hudaibiyah, and a truce was there arranged, according to which the Holy Prophet had to return without performing a pilgrimage.
The truth of the vision is therefore asserted here. It is made clear that the Prophet’s return did not falsify the vision, which had to be, and was, fulfilled next year. This was the answer which the Holy Prophet gave to ‘Umar when he objected to returning without performing a pilgrimage (B. 54:15).
The near victory referred to here as coming before that, i.e., before the vision was fulfilled by the actual performance of the pilgrimage during the following year, is the conquest of Khaibar which happened in the month of ˝afar in the seventh year of the Hijrah.
28a. This prophecy of the prevalence of Islam over all other religions is a prophecy which extends into the distant future, while Arabia saw its fulfilment in the lifetime of the Holy Prophet. The prevalence of Islam does not, however, mean the political supremacy of its adherents at all times, nor does the prophecy signify that other religions would at any time entirely disappear.
It only indicates that the superiority of the religion of Islam over all other religions will at last be established, and Islam will be the religion of the majority of the nations of the earth. No other scripture prophesies the triumph of the religion it preaches in such unmistakable terms. See also 9:33; 61:9.
29a. Ashidda’ is plural of shadid, which means firm, strong, powerful, as well as brave, firm of heart (LA, Q, LL). Shiddat, the root word, also signifies firmness of heart (T). The translation fierce, or vehement, adopted in English translations, is not correct here. The Muslims stood firm against the disbelievers but they were never fierce or hard in their treatment towards them.” 
 The Holy Quran Arabic Text with English Translation, Commentary and comprehensive Introduction [Year 2002 Edition] by Maulana Muhammad Ali, Page 1002