Scott Atran's Genesis and Future of Suicide Terrorism is probably ancient news, but anyway, he argues that current policies are pretty futile. He advocates

finding the right mix of pressure and inducements to get the communities themselves to abandon support for institutions that recruit suicide attackers.

Good luck with that. He explains encouraging moderates is a good idea, because

research suggests that most people have more moderate views than what they consider their group norm to be. Inciting and empowering moderates from within to confront inadequacies and inconsistencies in their own knowledge (of others as evil), values (respect for life), and behaviour (support for killing), and other members of their group, can produce emotional dissatisfaction leading to lasting change and influence on the part of these individuals. Funding for civic education and debate may help, also interfaith confidence-building through intercommunity interaction initiatives....

He also advocates giving in:

Another strategy is for the United States and its allies to change behavior by directly addressing and lessening sentiments of grievance and humiliation, especially in Palestine (where images of daily violence have made it the global focus of Moslem attention). For no evidence (historical or otherwise) indicates that support for suicide terrorism will evaporate without complicity in achieving at least some fundamental goals that suicide bombers and supporting communities share.

At the same time, he insists that these societies are only hostile to American policy, but not to American values:

...populations supporting terrorist actions are actually disposed favorably to American forms of government, education, economy and personal liberty, despite these people's trust in Osama Bin Laden and support for suicide actions.

And he notes that improving social conditions in these nations may not necessarily help:

...studies also confirm earlier reports showing that suicide terrorists and their supporters are not impoverished, uneducated, spiteful, or socially disfavored.

Then there's this rather odd metaphor:

Like good advertisers, the charismatic leaders of martyr-sponsoring organizations turn ordinary desires for family and religion into cravings for what they're pitching, to the benefit of the manipulating organization rather than the individual being manipulated (much as the pornography industry turns universal and innate desires for sexual mates into lust for paper or electronic images to ends that reduce personal fitness but benefit the manipulators).

Religion as pornography? Very funny, but a little unjust. Pornographers are just entrepreneurs who want your money. Religious leaders in general want your soul, and terrorist leaders want your life.

Update. And what's this about "no evidence (historical or otherwise) indicates that support for suicide terrorism will evaporate without complicity in achieving at least some fundamental goals that suicide bombers and supporting communities share."? He's got plenty of footnotes, but nothing for that one.