The settlers are in my opinion a completely legitimate military target, just like a soldier. They are invaders and occupiers, to not be able to fight against that would be ridiculous. They're not weedy civilians, these people are extremists, terrorists and invaders, and should be dealt with as such.
Oh, and here's the real gem: What happens when the palestinians performs collective punishment, just like Israel has done for decades?
@Frags: When you have two different set of punishment for the same crime, one for one ethnic group and the other for another ethnic group, I fail to see how that can be called anything but racism.
As for dealing with Hamas and Israel; you have to have one plan for each tyrant, there is no "one solution" that can be applied to every situation. Hamas showed willingness to moderate themselves in exchange for more international support. Israel commits even worse atrocities when they gain more international support.
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