The event in Mumbai is a good opportunity to restate some of what I have already discussed, and put it in an easy reference list. Here I want to focus with you on how to understand and deal with terrorism. Here are the points you must always keep in mind, and then flesh out your policy, strategy and tactics based on this understanding.
1) You cannot ever "kill all of the terrorists."
It is tempting to think that they are a certain number of people who can be hunted down and killed, but they are a process, not a generation. Erroneous strategy results if one imagines that there is some fixed number of terrorists who can be killed. Here is a mental exercise to help from falling into that mind trap. Imagine if you are in charge of domestic war against gangs. Can you kill every youth who is in a gang, and think that the phenomenon of gangs then disappears? Of course not. Gangs are a substitute structure for something, reasonable or totally unreasonable, that is lacking in the lives of potential members. Terrorism is likewise a continuing process that draws new generations, not a specific number of people. So it is essential that you do not confuse a policy of vigorously going after "all" terrorists with the delusion that if you kill enough of them that terrorists and terrorism as a concept goes away.
2) Terrorists tend to be morally very conservative.
This is true not only of Islamic extremists, but many of the other problems with terrorism, such as "The Troubles" in Northern Ireland. One must always bear this in mind because it is essential to both understanding terrorists and, if one ever gets to the fortunate point of direct dialogue, negotiating with them. This is because you must understand that moral conservatism is an incentive for peace in negotiating with terrorists. For example, I commented before that I wish that Pope John Paul II had gone further in excommunicating not only IRA members, but those of the flock who supported them. It is important that diplomatic and religious leaders maintain their own moral high ground in dealing with terrorists. Not only do they respect that, but yielding on certain morality issues is a genuine bargaining chip in negotiations. I mean, what is more important, having peace in some region of the Middle East, or insisting that we are only free if we have XXX rated video stores on every corner? Terrorists do not understand or accept the "lowest common denominator" of morality. That "translated" means that terrorists, in general, do not understand why westerners want morals to be invisible or at the level of the lowest practitioner in an area. Western society has this weird view that all of society should be receptive to immoral business and activities in advance of their actually being in an area. Community morals are very important to terrorists.
By the way, this is true even among terrorists who belong to cults who seem to have practices that many view as morally questionable. It is not important that you, as a diplomat, or a combatant of terrorism, judge if the terrorist is truly "morally conservative" or not. What is important is that you understand that he or she fervently believes that they are morally conservative.
As a corollary to this lesson, it is incorrect to say that terrorists only want to "impose their morals on others." Sometimes that is true, but often it is actually the terrorists who want to preserve what had been traditional community standards of morality, which westerners seek to erode for money/business and also a libertine view of "progressive" society. You cannot negotiate with terrorists, in general, if you do not have as background an understanding of this difference.
3) Terrorists recruit from among the poor, the desperate and the disenfranchised.
While their leaders may have access to personal fortunes, it is the poor and the desperate, often as children, who listen to their message and enlist. One useful analogy is to think of terrorists as community organizers and activists, who then go to "the dark side." Terrorists tend to take the problems of poverty and being disenfranchised from the majority very seriously. It is while they remedy these problems, for example setting up their own schools and welfare programs, that continuing more militant youthful terrorists join their ranks. One cannot effectively combat terrorism while there is rank and mind boggling poverty among large groups of disenfranchised people. Many terrorists start out as children in the worst nameless and faceless poverty that few in the west where even the poorest has a social security card can understand. Generations of Palestinians have demonstrated this, and we are now seeing generations of poor children who become terrorists in Asia, such as Pakistan, India and other countries. The continent of Africa has many examples of this too, fueling tribal conflict and horrible recruitment of child soldiers. One cannot effectively combat terrorism without at the same time and with equal, not less, vigor combat poverty in the home grown terrorist nations.
I could offer more suggestions, but I remember from my corporate presentation days that three points are the ideal number for maximum memory and effectiveness of implementation. I hope that you have found this helpful.