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I don't think it's possible for any course of action to eliminate all occurances of terrorism. Terrorism is a means selected for various ends and as long as there is someone who wants something badly enough, or angry enough, they may choose terrorism as their means.
The important question then, as I see it, is what proposal best reduces the quantity of terrorist attacks and their lethality, while causing the least social detriment in other areas (economically, civil rights, etc.).
The problem with the hard-line approach is that it can serve as a motivator for others to turn to terrorism (eg. someone whose civilian parents are killed by US military action). The problem with the soft-line approach is that it serves as positive reinforcement for the use of the terrorist method.
I believe that when people act, they weigh the expected costs and benefits. These expectations may be distorted by emotions like anger.
Effective policy must increase the costs, decrease the benefits, and pacify the emotions.
I think that the context of a discussion of terrorism must consider, then:
How can we make terrorism more costly to the terrorist, who is already willing to sacrifice his self?
How can we decrease the benefits to the terrorist?
How can we reduce anger in potential terrorists?
How can we achieve this in the short-term without our means serving as a motivator for terrorists in the more distant future?
What is the risk of terrorism posed to society, and how much should we be willing to give up to reduce this risk?
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