What would the situation have been had Israel not invaded? Of course, that is an impossible question to answer but we do know that rockets were reigning down with increased frequency on defenceless communities. Israel didn't respond for years and the international community didn't care less. So what did you expect Israel to do? Despite all of the downside that you point out in your post, the situation today may well be far preferable than it would have been without Cast Lead!
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Details of secret talks for Israeli unity government revealed (Haaretz)
from the article: Top Egypt official: Israel-Hamas tensions could lead to another Gaza war