The only way there will be peace is when one side genocides the other. If Hamas had the military power to beat the IDF, you have no doubt they would do it. If Syria/Jordan/Egypt/Lebanon thought they would win a war, you have no doubt they would do it.
Why should Israel extend to their enemies a courtesy that their enemies would not extend to them?
Another advantage of wiping out Gaza is that the other Arab countries would need to find a new group of useful idiot cannon fodder to use in their fight with Israel.
Killing Hamas and leaving the rest of them alive just won't work. They'll just elect new radical anti-Jew hate leaders the second Israel leaves. If Israel doesn't leave, they're going to be taking casualties from snipers and IEDs.