Final answer:
The holiday celebrated during the unrest in Rushdie's walled city is D) Holi. This festival is important in Hindu culture, marking a time of joy and renewal. 'Midnight's Children' portrays contrasting themes of celebration and political tension.
Step-by-step explanation:
The holiday being celebrated during the unrest in the walled city that Salman Rushdie describes is D) Holi. This is an ancient Hindu festival, also known as the "festival of colors" or the "festival of love," which signifies the triumph of good over evil, the arrival of spring, and the chance to meet others, play and laugh, forget and forgive.
The novel Midnight's Children by Salman Rushdie blends historical fact with fiction and includes various cultural references, including this vivid celebration which is integral to the Indian culture and, particularly, the Hindu tradition. The unrest during the festival is a contrast between the joyous celebration and the political turmoil depicted in the story.
Answering the other question, the rulers of the Delhi Sultanate in India were followers of C) Islam. If Rushdie's description involved rulers of the historical Delhi Sultanate, it would be tied to Islamic religious traditions such as Eid, but in the context of the novel, the occasion is indeed Holi.