Israel's reaction was to 6 years of missiles, kidnappings, invasions (with the 
UN watching) and more. One could argue that the kidnappings were the straw that 
broke the camels back. 
But lets try it your way. Oh, but we can't because Israel already tried it your 
way more than once and the results were zip, zero, nada. The UN ignores 
Hizballah's actions and both condems Israel and tells it to just soak up the 
hits and negotiate. Russia? France? Arab governments? No help there at all. 
Quite far from it. If Russia was treated for its actions in Chechnia as Israel 
is treated....

As for India, your example fails due to the increasing number of terrorist 
attacks there as well as it's ongoing conflict with Pakistan over Kashmir. 

But your right. Hizballah doesn't care how many rockets it uses because Iran 
will always give it more. It doesn't care about its stockpile of weapons 
because the UN will just let more in without batting an eye. It does not care 
how many Lebanese they cause to die because everyone will blame Israel anyway 
(just look at the one sided reporting on Qana). 
Bottom line is fight or absorb damage and Israel can only absorb so much. 

>I understand the question, but the Israeli reaction wasn't to a huge
>ramp up in missiles, it was to the capture of 2 soldiers - point being
>that Israel wasn't being invaded, just provoked and they took the
>bait.
>
>Israel should have appealed to the world (keep reading): Arab
>governments, UN, NATO, Russia, etc.  Then, given no action, it should
>have prepared for full scale invasion possibly lining up allies to
>help.  And then it should have sent its ultimatum to Lebanon and the
>world.  And then it should sent in ground forces after a few bombing
>runs.
>
>Hezbollah is more powerful now before this started.  They don't give a
>shit about losing rockets - with the deep pockets behind them they can
>buy anything they want.  What they really need is people and public
>support and Israel just haded it to them on a silver video screen full
>of dying and dead civilians.
>
>As to the way to handle Muslim extremists the world should get a clue
>from the largest Muslim country in the world: India.  Economic
>prosperity and hope for the future is the ONLY force that will defeat
>extremism.
>
>And, if you don't believe that, look to Korea, Japan, Singapore,
>China, etc, etc.

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