That was the whole fallacy of the pullout. Frankly if the Israelis had been tough enough they would not have had to pull out. There is not that much difference between telling the Arabs to leave Gush Katiff alone and telling them to leave Sderot alone. The pullout gave up Jewish rights, created Jewish refugees who still have not been settled and emboldened those Arabs who beleive terrorism works.
On the other hand for it to have worked would have required an iron fist in response to any Arab attacks against the inside of the green line. The problem is that once you start the process of giving in to terrorism it is hard to say after this retreat we will stop. It is too much like the alcoholic who claims this is his last drink.
I obviously strongly disagree with you. Keeping 8,000 Jews in the midst of 2 million Arabs in Gaza was impractical at best and a huge drain on IDF resources. It could not be sustained.
Having said that I do think the IDF is capable of tough action against the Palestinians as we saw in Jericho. I think Prime Minister Olmert is too worried about coalition talks and American reaction to a strong response. If he responded strongly Israelis would rally around him. Meretz isn't going to be in the coalition anyway and they are the ones who would protest most loudly.