Assume for the sake of argument, that the terrorists do have access to nuclear weapons (and I still believe they do not.)

Here's an interesting response: So what?

They certainly don't have multi-megaton city busters. Let's assume for the sake of argument that the terrorists have managed to divert a Pakistani warhead, which given Pakistan's political situation, would be much like slipping out of the Smithsonian with the Hope diamond.

The largest weapon Pakistan tested was estimated at about 35 kilotons (Hiroshima=15 kilotons, Nagasaki=21 kt).

This could certainly do considerable damage to a city, but would have to be air-detonated to have the large area impact that Hiroshima did. A ground detonation would generate a big hole and a lot of fallout, but only for a short time.

Then what? The terrorists certainly can't do this more than once, maybe twice. Now they've made the first nuclear strike, and we already know who they are. What does this buy them? Yeah, I know. They're crazy.

So we kill them with even greater fervor, and rebuild our cities. Seen Hiroshima lately?

This is a fear tactic, and not a very good one except to those who have been taught over the years that nuclear weapons are apocalyptic in any form or size, including tacticals. Not that I'd want to be next to one, but the damage done by the airliners in New York is probably comparable to whatever nuke these guys can manage to scratch up.

The radiation bomb is a much more likely scenario, and that only works as a fear tactic because we have also been taught (incorrectly) that radiation is an Apocalypse Weapon.