This is an update of a post from 23 November 2014, that is topical again now that Israel has started demolishing terrorists' houses again.
There are many actions that the Israeli government could and should take to both deter and punish terrorists and their families (in my earlier posting I referred to Caroline Glick's suggestions in this superb article). I am in favour of extremely harsh measures to counter the current tsunami of attacks against Jews by Arab antisemites in Israel. But demolishing terrorists' houses is not one of them. If any houses are to be demolished the one at the very top of the list should be the $13million palace that Mahmoud Abbas built for himself with US and UK taxpayers' money. After all, it was Abbas's UN speech last Wednesday that was a declaration of war against the Jews and that triggered the slaughter that started the very next day. Destroying the houses of the PA and Hamas leaders - not their indoctrinated foot soldiers - might actually have a deterrent effect. Indeed it was only when Israel started demolishing the entire apartment blocks where the Hamas leaders lived (in the 2014 conflict) that the latter begged for a ceasefire.
As explained in the above table, there are multiple reasons why demolishing the terrorists' houses not only provides an incentive to other terrorists but is also costly in many ways to Israel. For Israelis there is not even a fleeting satisfactory feeling of revenge, because we know that the terrorists' family will actually be massively rewarded with a far nicer and bigger house, and lifetime financial rewards beyond their wildest dreams. They do not even lose any of their possessions (they are given weeks of warning). Basically the 'punishment' is equivalent to winning the lottery for them.