OK, what the hell, I apparently lost a post. I had responded to Luis and Joshua at the top of the page this afternoon, but it seems the damn forum ate my post. Arrrrrgh. It was both brilliant and eloquent too, damnit. Let's try this again. I'll see if I can recapture at least some of it.
Israel and the PA could come to a two-state solution. It would take time, but it can happen. Israel, the PA, and Hamas can't. This is fundamentally because Hamas ceases to exist if the two-state solution becomes a reality. The entire reason for Hamas' existence is to destroy the state of Israel - period.
Herein lies the quandry: if Israel does not respond to Hamas' attacks, there are two immediate consequences - (1) Hamas gains/maintains the limited support it has, and (2) Israel's population, being constantly under siege without a government that protects its civilians from rocket fire and Hamas' attacks, hardens against concessions as part of the two-state solution. So... not only does allowing Hamas to fire on Israel with impunity benefit Hamas, it simultaneously harms the best shot at peace in and around Israel in the long term. That's two significant long-term consequences which are more important than the short-term death toll in either direction.
Hamas runs Gaza through force of arms. Emboldening Hamas - by unilateral cessation of fire - gives them the propaganda victory of continuing to rain fire on Israel (which is popular among Hamas supporters and maintains or increases their support level), and further demoralizes the majority of Gazans who would love nothing better than to get rid of Hamas and invite the PA back in, but can't... because they're governed at gunpoint. Ceasing attacks against Hamas while they continue to attack Israel also allows them breathing room to perfect their techniques without worrying about a missile strike taking out their launchers and the people running them. That makes it very likely the civilian body count and destruction on the Israeli side will also increase which.... you guessed it, further benefits Hamas.
Hamas has a very clever tactic. They park their weapons and key personnel in places they surround with civilians, they fire at Israel, not caring about retaliation, and then they wait for the international community to condemn Israel while they gleefully continue the rocket attacks until the point at which they either run low on weapons or take enough hurt that continuing is no longer an option, but by then all the ignorant do-gooders in the West have done their job for them - they've ignored the fact that Hamas is a group of terrorists targeting civilians, and condemn the nation state defending its civilian population that happens to kill ordinary Gazans because Hamas intentionally puts them in harm's way.
The only end game here is the complete elimination of Hamas' power, and so long as they are firing at Israel, force is unfortunately the only way to work toward that. Only then will a true peace process be possible, and Hamas knows it, which is why they do their best to derail the process as frequently as possible. It's also self-preservation - if the two-state solution becomes a reality, Hamas loses its only reason to exist.
Once Hamas starts firing on Israel, Israel has no choice but to shoot back until Hamas can be forced into a cease fire. Doing anything else - at least until the intercept program is perfected to the point where Hamas can't hit Israel with any airborn weapons, period - harms the peace process in the long run. Even now, at the height of the pictures of dead children, Hamas does not have majority support in Gaza.