"And if it's not a binary choice between military action or letting Saddam loose
until his power increases, I'd still like to hear any reasonable alternatives. Sanctions, maybe?"

I think that if Saddam gives up his weapons of mass destruction, then the US should not pursue regime change.
If Saddam actually abides by his surrender conditions after Desert Storm which also include US rights to control Iraq's airspace both in South and North, then I think we should seek to lift all sanction against Iraq, and evenually move away from control Iraq's air space.
Any Iraq support for terrorism should be handled as though any other country was supporting terrorism, though with Iraq any involvement with terrorism would have a tendency to extend the duration US control of airspace & encourage us to be "more aggressive" about patrolling this area (pushing our agreed limits). I think that Iraq actions which are seen as continuation of hostility (related to the invasion of Kuwait, and the subsequent Desert Storm) should have special consideration- basically Iraq has agreed to stop hostility, continued hostility brings us back to a condition of war.
It's not that I don't think we don't have the right to change the Iraq regime. He has done and continues to do acts of war against the US, and continuing behaviour could at some point be enough for us to decide that a certain threshold has been exceeded. It's just at the moment, and considering what other problems we are trying handle I don't think it's a good idea. We should be content with ridding Iraq of WMD. If the issue to do with WMD does not result in an Iraq invasion. The next issue that should be addressed is Iraq's hostility to your military aircraft.
But it's a minor issue; the major issue would be reaching an agreement with Israel and Palestine.