1) Tell them you'll kill one of their comrades for every hostage killed.
2) Put barbed wire around the school. Security permitting, make a separate barbed-wire compound for the terrorists' comrades, visible from the school.
3) Hire Israel to fly in 200 of their special forces for standyby and/or attack on the school.
4) Afterwords, kill the requisite number of terrorists' comrades.
Obviously we couldn't do this in the US (and we wouldn't need to do step #3, what with Delta Force et al). But Russia is already a brutal, lawless place, and Putin is supposed to be ruthless. Why the heck not?
Once again Israel shows the world that she is the light upon the nations. Willing to help even those people who would happily annihilate her if given the chance.