Negotiate with terrorists?

Juan Cole has a good take on how the Bush Administration has ceased its cowboy rhetoric and says it is willing to consider negotiated settlements to its problems in Sunni Arab Fallujah and in the Shiite south with the militia of cleric Muqtada al-Sadr.
The only problem with this change in tone, is that they are damned if they do and damned if they don't. If they continue to play hardball, then lots of civilians die, and they must deal with the political fallout. On the other hand, with a softer stance it shows the insurgents that the CPA can be rocked.