An "internal exile" for Saddam??? Surely you jest - what good would that do??? Would you have been willing to call off WWII in exchange for Hitler moving to Munich???
The "pan arab anger at the US" you refer to was well entrenched long before Saddam became a problem and stems from our support of Israel, not our problems with Iraq. And the only "rebuilding expense" that we could expect in any case from the Europeans would be from France, Russia and Germany in the form of further entrenching themselves in Iraq's economy at our expense.