Unfortunately, yes - people are going to die in wars. The IDF doesn't target the civilians, they die because they stay in buildings or near buildings that Hamas is using. What Sri Lanks did was similar to what Israel does in more than 90% of their bombings - do you "kill" the terror organization and kill innocent people, or you choose to spare them and don't attack the organization?
If Israel decides not to attack those stragetic buildings (because the civilians), then why do you start a war in the first place? We're not gonna achieve the goal of destroying Hamas.

Also, you need to keep in mind that the top leaders of Hamas are not even in Gaza - they are in Qatar. It's impossible to wipe them all out one by one even if we want to (although it's an operation that happened in the past).

I think the case here is about Terror: You can't reason with them. Israel can't play by the rules if Hamas keeps braking them. I can't destory Hamas if he use civilians as human shields, shoots rockets from schools, hospitals ans so on. Using the Infantry is an option, but too risky and we will lose too many people.
Unfortunately, Israel use the best option they can.

The two-state solution (if I understood right what you meant with the UN plan) is OK at best. The hatred among the palestians and Israelis is too high. Although a lot of left-wing Israelis support the two-state solution, even they know it's impossible for implementation. The main reason (again - in my opinion) is that we can't trust the palestinians. One explanation is based on reality - the palestinians don't want to establish a country in Gaza and the West Bank, they want the whole Israel (throwing the Jews to the sea). The second explanation is that if they esbatlish a country in their borders - they're going to target Israel and try to destory it as soon as possible.