It is very difficult for them to denounce jihadist terrorism because their prophet engaged in the same actions. Their holy book advocates beheadings for infidels. The Koran requires Muslims to engage in jihad with infidels if they do not convert or accept dhimmitude (unbelievers agreeing to live under Islmic law).
For the "moderate" Muslim community to publicly condemn the actions of terrorists would be to condemn the literal practice of Islam. This religion is facing a serious crisis, in my opinion.
You're right. They'd have to revise their holy book and forever excise the parts that feed radical Muslims. As long as the Koran contains those extreme teachings, there will be radical Muslims. It has always been so. Some Muslims will choose to follow the "good" parts of the Koran that teach brotherhood, kindness and love. There will always be those who will choose to follow the parts that advocate cruelty, oppression and murder.