Well, the obvious answer would be the same as always, the cliché: they were afraid. Afraid of something they feel they couln't explain, afraid of a power they couldn't control. It was against many religions and a hazard to their beliefs. Some people felt the need to associate Wicca to evil, to the summon of demons. And they had something right: magic was almost every time destructive magic. Even moden magic. Many if not every spell can be used with *dark*, illegal purposes. At least potentially. And some people actually DID used it for the purpose we are talking about - many times to frighten muggles especiafically.

It was at this point that Merlin created the Order of Merlin. The purpose of it was to protect muggles from magic and to give notice that wizards should NOT use magic on muggles. Magic was to be used responsibly. Or course, King Arthur's sister and Merlins' rival, Morgana, had quite a different idea on what people should do with magic. But that's another story. The thing is that there were various points of view on how to use magic, so muggles fears were sometime justified, and some times unnecessary...

There's something else I like to add. In Ancient Egypt, before this time, muggles and wizards lived together, but that was probably because the magic developed was so little muggle and wizard could be mised up easily. It seems it was common belief that all humans had magic within themselves, and maybe they did, but that changed. And some times there were false healers that only worstened the state of a person. False prophets, shamans and seers who invented their visions. Many oracles were useless at all. With this notion the wizard and the muggle was slowly divided in two different groups: the ones with magic and the one which didn't have any of it.

And here we come again... Those who didn't, how did they do to defend themselves from the ones with such a power? Fright made muggle create weapons, excuses and intrigues. Lies even. And next we know it was a war. A war which, to be stopped, resulted in the wizards going into hidding of their true nature.