This incident is a face saver for Bush, he gets to bow and scrape his way out of Iraq, and the detainee mistreatment gets the blame for why things went wrong in Iraq. After all, that's the way Vietnam history was revised, too. Incidents like My Lai kept us from winning the "hearts and minds" of the Vietnamese people, which kept us from being able to achieve victory there, in the liberal retelling of the story, which most conservatives in politics have signed on to, by their silence.
I suppose that the real reason we didn't bomb the holy living crap out of Hanoi and other North Vietnamese cities was to avoid a wider war with China and the Soviet Union, I suspect that there is a similar reason to avoid nuking Najif.
We really don't want to take on the entire Arab world all at once, especially during the heat of an election year. Bush gambled that Iraq would be neutered by the summer of 2003, so he could run on it as a victory in 2004, and he lost that bet. Best thing to do now is to take the issue off the table for November, so that he can get reelected, hopefully with a sizable Republican Congress, and we can finish the job in his second term. If there's a terrorist incident just before the election, that provides the reason to start bombing the day after the votes are counted.