What should have been the Israeli response to the Hamas rockets?
That really isn't an important question. Israel is going to do what it needs to do to maintian the status quo as long as we enable them. Doesn't matter if they kill thousands in Lebbanon or hundreds in Gaza, we protect them from the consequences of their crimes.
If Israel wants peace it should allow the existence of neighbors that can control their territory and states that can be punished if they don't. A weak Palestine authority and a fractured Lebanon will always house terrorists. If Lebanon and Palestine were stable you could act with state actors like you do with Egypt and Jordan.
Israel wants the land of the palestinians they don't want peace on any terms but their own.