When battling with an enemy the objective is to inflict maximum damage and take minimal losses.
It's a bit more complicated than that.
If this were true, Israel would all out level Gaza from the air without even feigning concern for civilian casualties. It's not like it's particularly large or the people have many options of where to flee.
But they and you know they couldn't do that.
So they walk the fine line of feigning concern while showing enough disregard for it to piss off many but not enough to cause real diplomatic problems for themselves.
All out war of the type you describe might actually make the US, the bigger, badder kid on the block standing behind them, withdraw support.
If the tables were turned all of the Jews in Israel would be dead. All of them.
And the current situation helps this how?
Maybe it's a lost cause (probably?), and I'm certainly not saying Israel should remain inert in defending itself, but at a certain point the actions it undertakes appear antagonistic and counter-productive to ending the conflict. Of course, not being an Israeli, I assume ending the conflict is even a goal to begin with.
They are far from blameless, but the could very easily wipe out the Palestinians if they chose to.
And it's anything but altruism that keeps them from doing so.
They're maintaining a fine balance, IMO, between pummeling the Palestinians and maintaining enough international support to remain viable. They're dead if they stray too far to either of those sides.