At the very least, they should destroy Gaza City. Build a new wall separating North Gaza from South Gaza.
Among the very small group of nuclear civil engineers (those that use nuclear weapons for peaceful purposes), two studies have been produced recently that are economically feasible and beneficial. The first was the Deepwater Horizon study. Small nuclear weapons were contemplated and computer simulations shows it would cap the well quick and efficiently, problem was getting it down in saltwater/pressure resistant package.
The second was sealing all tunnels in the Gaza Strip. Drill a bore hold 900-1200 feet down and detonate a 100kt nuclear weapon. The shockwave would virtually eliminate nearly all tunnels within a few miles. 1-2 drill sites would almost guarantee it.
I say Israel depopulate gaza strip, declare a nuclear power, and use a peaceful nuclear crater.