The way to stop this is to end the insane war on drugs tomorrow. It has killed more people than drugs ever did, except for alcohol. It corrupts our law enforcement and judiciary, and fostered the growth of a leviathan police state that would have been utterly foreign to our founding fathers.
The other thing that would be needed is a reform of Mexican gun laws. Let the common man go armed, and shoot these thugs down like mad dogs.
Those two actions would cut the number of innocent people killed by 90 percent in one year.
Concerning your second point - Mexico has done that in some areas with great success, on a local basis. Some regional military commanders have allowed the construction of local militia, sometimes even going out of their way to help. Probably the best example of this would be the Mexican Mormons. The Mormons founded several colonies in Mexico, and several have survived to this day. They tend to be rather insular communities in the north-western states of Mexico. In at least one of these states, when the local regional military commander was asked by the predominately Mormon communities for greater protection from the cartels, he said that he lacked the troops needed to patrol their towns in addition to the other areas under his responsibility. However, he also said that he’d be willing to turn a blind eye towards their forming a militia, and even went so far as to help provide them with weapons.
As for training? Well, the Mexican Mormons simply sent word across the border to their fellow Mormons in the US. Plenty of combat veterans, fresh from the wars in Iraq and Afghanistan streamed across the boarder to help organize these militias. From what I’ve heard through the grapevine from my Grandfather who lives in Coahuila, they’ve done a good job keeping the region free from cartel thuggery.
Still, I have my doubts as to whether the central government will decide to enact such measures on a wide scale. The central government of Mexico has always had problems of legitimacy, and there have been many regional separatist movements in the past. Though only one of these ever succeeded (the rebellion in Texas), the threat of regionalism never left the minds of later governments, and especially after the revolution, Mexico City was careful to make sure that the local and regional governments never gained much power - kept them dependent on the central government for almost everything. This worked well in the past - the last military uprising occurred in 1938, and the last civilian one was easily crushed in 1994. But with the resources of the Federal Police and military stretched to the brink? With entire regions where troops can only move in heavily armed convoys?
This is no longer a conflict over drugs. It might have started that way, but now, it’s something different, a struggle over the legitimacy of the Mexican government. The fact that they cannot defend the people raises questions over this. And allowing more local militias to form, for the people to arm themselves, save themselves, as it were, without Mexico City, would only make things worse. The cure might be as bad as the illness. So I very much doubt that the central government would go that way, not unless all hope is lost.