Israel has a moral obligation to defend it's from a Terroist Organization otherwise known as Hamas.
Hamas is not a terrorist organisation, you get nowhere by labelling other groups as terrorist organisations, just because they are of different people to you and just because they stand for different causes doesn't mean that they are a terrorist organisation.
To many people, Hamas are freedom fighters who are fighting to get back land that (according to them) they rightfully own.
Resolving disputes requires both sides to understand the motives of each other and accept that both their motives are understandable and reasonable. To call a party a terrorist organisation is just inciting hatred and not assisting others to understand why Hamas do what they do. This will never assist to resolve the current situation in Gaza.
Israel has been targeted time and time again in it's history by Arab Countries. Six-Day War, Yom Kippur War. It is justified to have such Arsenal in order to deter these states from using aggressive tactics in order to get rid of Israel. Back in that time , Arab Leaders aimed to drive the Jews into the Sea.
Hamas is defined as a terrorist organization by the EU and US not because it represents Palestine, but because it deliberately does not discriminate between civilians and terrorists. Whose Reality, perceptions etc etc aside, what makes them terrorists is the fact that they attack civilians on PURPOSE, whereas nowadays (not in the past), Fatah does not. Fatah is more or less a real political party that isn't defined as a terrorist group because they mostly don't support indiscriminate attacks (although they still kinda do... morally ambiguous area).
@pi, it's interesting that you would look at raw deaths as a way of measuring who is right or wrong in this situation. Firstly, let's look at the rockets fired into Israel over the past 12 years - more then 13,000 rockets have been fired. Now, assuming these rockets have the POTENTIAL to kill one person each (although one can and has killed more) - if they were in fact killing Israeli's, would that in your mind give Israel the moral impetus to fight back and somehow make them more in the right? This in my opinion is flawed logic... I would argue that although more Palestinian civilians have died (a tragedy in itself), having Israeli kids need to run into bomb shelters every second day for a few years is equally tragic. Israel is acting to prevent future deaths, and it is precisely that which has ensured their death toll remains relatively low.
The next element is WHY are more Palestinian civilians dying? Now on the one hand, I think you'd be hard pressed to argue that Israel does not need to somehow retaliate to the Hamas rocket threat because it is a substantial threat that in reality, no other country would tolerate. These fighters for Hamas are not bastions of morality who are fighting for some grand cause, it is a well documented fact that Hamas will place their rocket launch sites in areas where they can maximize civilian casualties. What then can Israel do to reduce casualties? JellyDonut touched upon this earlier, when he suggested that Israel could be using more discretion in their air strikes. Well firstly, as according to your link, look at the civilian deaths and compare Cast Lead to Pillar of Defense - yes, Pillar of Defense was shorter, but the militant:civilian death ratio was also much lower. I would argue that Israel is improving it's air strikes in an effort to reduce civilian deaths.
I think that ultimately Israel is in an incredibly precarious position where the cliche "damned if you do, damned if you don't" really does apply. It has to protect its citizens and respond to the rocket strikes, but on the other hand that is what Hamas wants Israel to do as the only way for them to generate Western support is if there's a constant stream of photos of wounded children and crying mothers. The real victims in this situation are the Palestinian population, and I emphasize with them for what it must be like to live as puppets in a regime which cares little about them.
Moderator action: removed real name, sorry for the inconvenience