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"But considering it looks like some of the townspeople may have accidently shot some of the hostages or even some of the soldiers, I think it's open to debate."

You say "may have"? You are criticizing Putin for something that might have happened? Governments all over the world do lots of incredibly stupid and corrupt and despicable things, and if you want to criticize Putin, there are plenty of things he has done which are pretty stupid, corrupt, and despicable, but this isn't one of them.

I guess you would be happier if the townspeople had been unarmed? It certainly would reassure the terrorists. They would no longer have to worry about being shot by one of their victims. Free to terrorize without danger. Every Muslim terrorists dream.

Hmmm... kind of makes me wonder whose side you are on?

I think it's up to someone in charge to get the townspeople out of the immediate vicinity.
You can try to argue that this was handled just dandy. It wasn't.