I think that our definition differ, mine is quite simple, anyone that target civilians in order to terrorize a population, is a terrorist. And don't bring me Dresden, they were the one starting by bombing London with V1 and V2.
No. It's always a matter of perception. And frequently it is useful to attempt to see things from your 'enemies' perspective. (As i think you have done.)
To dismiss your enemies as evil (and ignoring the fact they are demonizing you in the same terms) seems to limit options.
Although I recognize that many view any other course of action as appeasement, I think that casting the problem as merely a battle of good vs evil (and ignoring the objectives of the terrorist - legitimate or not) is not a very strategic response.
But that begs the question of what we are attempting to accomplish - retribution, or something else.