It may not be enough to threaten these terrorist since they've shown their acceptance to die with their bombs, so long as they can take others with them. Would they be so willing if they knew their families would then be gathered up and also destroyed by a bomb within their midst? Then they are not just destroying themselves but also their fathers, mothers, sisters, wives, children.
In the Bible we are told to not punish the father for sins of the son and vice versa, but that's as a nation, doesn't apply to war time situation. In fact, during war, often God demanded a genocide on some people. The most famous may be the one where Saul had been told to do such and he chose not to, so the prophet came, slew the foreign king himself, and then told Saul he'd lost his kingship and would be removed. What people were they dealing with then? The same type we see doing this in today's world.
At most, we need to contain this Islam the same way we fought and contained Communism. Ban it in our countries, and stomp on it everytime it wants to expand from it's own area give over to it.