"Judging all Iraqis by that murderous mob in Fallujah would be just as wrong and bigoted as judging all Palestineans by those who danced in the streets on 9-11. Too bad you can't see beyond your own bias. "

I must admit that my first reaction was I felt draconian measures were needed. But I think that calmer approach would be better, I think we should try negotiations. Now, I'm pretty ignorant about Fallujah, all I really know is that it's been "problem area" for about 1000 years. So I would start by asking is there anything good about Fallujah? Is there holy sites, nice buildings, or whatever. Because if there isn't anything salvageable about Fallujah, perhaps the negotiation should start with idea that the whole town should be flatten, and then rebuilt. Inhabitants can compensated, they can grab whatever possession they want and then the whole place is given a clean slate. The New Fallujah can be city planned with parks, libraries, and whatever.
Now, of course, the inhabitants of Fallujah should play a major role in this decision process. And demolition, and construction of roads and all the other infrastructure can be a govt job's program- which should help lower unemployment.