On reading the details of this attack, my reaction is "kill them all". The people in Israeli military/intelligence have been dealing with Palestinians for decades. They want an excuse to "kill them all" and now they have it.
They should take advantage of the situation. Capture every man of military age and put him in a POW camp in the Negev Desert. The remaining women and children can live out UN rations at a refugee camp right at the Rafah Border Crossing.