The Israelis in Lebanon and ourselves in Iraq and to a lesser extent, in Afghanistan have demonstrated that our overwhelming superiority in Blitzkrieg warfare is greatly reduced when we undertake to occupy the very same territory we have so easily overrun. This reality coupled with a fanatical, indeed suicidal, willingness, indeed eagerness to sustain casualties means that our ability to intimidate is grossly reduced. You are quite right to point this out. I have been posting along these lines for some time.
As you said, "it's not working." I would add that if one looks at the forest instead of the trees, our situation in Iraq is counterproductive. I defined the forest to be Iran and the overall global war against Islamic fundamentalism. This is congruent with your statement in which you note, "disproportionately powerful weapons". If Iran gets the bomb it will be catastrophic for American interests everywhere. It must be the categorical aim of American foreign policy to prevent Iran getting the bomb. Our experience in Lebanon and Iraq and Afghanistan have only compromised our ability to intimidate countries like Iran and North Korea from getting the bomb.
Iraq has left us without allies, attenuated militarily, exposed as unable to cope with asymmetrical warfare in the context of an occupying army at a level of sustainable casualties, and without any good military or geopolitical options to bring to bear against Iran and, to a lesser degree, North Korea.
As you said, "The idea of creating an enclave of rationality in the midst of the irrational Muslim world, and hoping that this will spread seems to me to be virtually impossible". You say that the reason for this failure is that retrograde Islam as use modern technology to thwart it. Until one gets to the level of the bomb, I see the modern technology as a tool, or a weapon, but not an end strategy in itself. I believe Bush's noble attempt to unlock the Muslim mind with democracy is stumbling over our taxi driver.
Warning! This is a high-volume ping list.
Excellent way of putting it. And our taxi driver wouldn't have come up with this himself (remember, they initially had no objection to transporting dogs or alcohol) until modern communications made it possible for some sheik in a mud hut in Pakistan to communicate with and control him, even here in the heart of modernity.