The main question 'what Israel is going to do when Qassams will start hitting Ashkelon' was never answered. The initial answer - "we gonna hit them hard" - was dispelled when people started dying from this attacks and Israel did nothing.
A military fortification such as the Israeli Wall is not, was never intended to be and can never be a "deterrent".
Such a fortification is merely a static piece of military infrastructure whose purpose is to vastly increase the defensive capabilities against enemy land attacks and infiltration.
That is all it does. Period.
It has no offensive capabilities.
While land-bound threats do not constitute 100% of the Palestinian's offensive capabilities, they do constitute the vast majority of the Palestinian's meaningful offensive capabilities. The severe curtailment of Palestinian land-bound threats reduces the Palestinian's range of offensive options from the capability of killing thousands by means of dozens of suicide bombings to the capability of conducting nuisance rocket attacks.
The military definition of deterrence is the military capability to discourage any would-be aggressor from starting an attack through the fear of retaliation. That is not the role of static field fortifications. That is the role the units of your armed forces who posses the ability to project power into enemy territory, namely, the Air Force, artillery and Army assault units.
I discussed this issue of deterrence in my Post 21 of yonif's May 2004 thread
For Israel, the use of such deterrence is solely an issue of political will and political and military judgment.
The Israeli Wall considerably reduces the downside consequences of exercising such deterrence. Without thousands of Israelis on the wrong side of the Israeli Wall, any deterrent retaliation on Palestinian infrastructure can be carried out with much greater impunity than in the past.