Not bombing people (killing some of the hostages doing so). Make a serious offer for peace. Nothing serious has been done since Rabin's assassination. Both Barak and Olmert's tries were ham-handed, at a time when both Barak and Olmert were about to be ousted from power.
Can't you understand that violence won't solve anything at all? Retaliation won't resuscitate any of the dead. "Eye for an eye" will only make everyone blind in the end.
If Israel want to get back its lost moral up-hand, it has to offer peace, for real. Nothing else will do. If Israelis are serious about being better than the opposing side, than they have to do better than the opposing side, not worse.