Unfortunately, if we do just let the two sides slug it out, its going to end badly and neither Hamas nor Israel are going to be the ones who pay the price. Israeli civilians hit by rocket attacks and, more apparently, Palestinians caught in the crossfire are going to be the real victims. As far as I've heard from CNN, BBC, Israeli media, and al-Jazeera, the IDF has been going to extreme lengths to keep civilians out of the conflict, but I'm afraid their efforts are for nothing.
The Israelis are screwed no matter what they do here. They pull back now, Hamas gets a treatment similar to Hezbollah at the end of the Lebanon conflict, seen by Palestinians as their great defenders and saviors, and, thanks to the Arab media (specifically al-Jazeera, "martyrs" my ass), the rest of the Arab world is going to do the same.
If Israel keeps going, the Palestinian body count will keep piling up. Civilians will be shamelessly used by Hamas as cover for their counterattacks, and more will be caught in the crossfire.
Regardless, Hamas as a military element needs to go. The Palestinians really do have a chance for peace with Abbas, but the division between Fatah and Hamas is simply ruining any hope for that.