In theological terms, what is the meaning of the term "grace"?

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Although the term "grace" takes on different nuances in different spiritual traditions, the term generally refers to mercy on behalf of a deity.  Hindus believe that grace is a state that must be earned, while Muslims' conception is fairly similar to Christians, that it is a virtue bestowed by Allah or God, respectively, with no real connection to good works.  Catholics and Protestants in the Christian realm have different perspectives as well; Catholics generally hold that God delivers grace to His people through the sacraments, and that only people in good standing with the church will be allowed to partake in said sacraments.  Protestants see grace as mercy bestowed by God to an undeserving populace and that all that is necessary to receive this is a commitment to follow Jesus Christ.  In the more liberal of the Protestant traditions, such as Methodism, the sacrament of communion is offered to all who wish to partake, and is often used as a call to commit to Christ. 

Additionally, eNotes/Wikipedia offers the following observation regarding the use of the word "grace":

In the New Testament, the word translated as grace is the Greek word charis. . .for which Strong's Concordance gives this definition; "Grace, the state of kindness and favor towards someone, often with a focus on a benefit given to the object.

The same article comments also states:

In the Old Testament, the Hebrew term used is chen. . . defined in Strong's as . . .the moral quality of kindness, displaying a favorable disposition".