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The Mishna in Avoda Zara (35b) tells us that Chazal forbade pas akum. The Gemara (36b) explains that this was done as a geder to avoid intermarriage. However Tosfos1 bring a Yerushalmi that says that a later Bes Din removed this issur. The exact extent of this retraction is a disagreement between the Mechaber and the Rama. While all agree that bread baked by an akum for personal use is still forbidden, there are differing opinions as to how careful one must be to avoid eating pas palter, bread baked by an akum for the purpose of selling. http://www.oukosher.org/index.php/common/article/creating_pas_yisroel/