Well, the government-run schools are mostly where the law has had to make lots of fine distinctions. In the extreme cases, it's perfectly all right for individual kids to pray out loud or make religious statements in situations where they'd be allowed to make other kinds of statements; it's not all right for the curriculum to include daily prayers or for the teacher to start proselytizing in class. In between are a lot of cases that are trickier (schools trying to get around bans on endorsing religion by instituting student-led prayers, etc.)

I recall dimly that, after a number of these cases ended up in the papers (sometimes because school officials had weird ideas about what the law was and started telling students it was illegal to say "Merry Christmas" and crap like that), the Clinton administration was actually moved to put out a memo explaining in great detail what was allowed and what wasn't, and that it was amazingly sensible and got Clinton praise from prominent non-crazy religious leaders.