Monte Cassino is not an option. This is the oldest Church in continuous use in the Holy Land. Not even the Persians tried to destroy it. It must endure.
I don't really see much alternative to the Israelis giving in. However, they can't do it before all the rest of Bethlehem has been cleaned of armed Palestinians. For one thing, the Palestinians in the church have stated that they won't leave if Israelis are still in the town.
Whenever the fighters leave the church will be a dangerous time, because their dislike for Christians is only slightly less than their hatred towards the Jews.