I think several things have to happen:
1. Give the Palestinians some form of self-goverment
2. Get out of Saudi Arabia. We can still buy their oil from them, but we can at least get rid of our troops stationed there. Move them all to Quatar. Just get them out of the holy land.
3. Reform Saudi Arabia. In other words raise their standard of living and stop the spread of Wahabbism.
These things alone will radically change everything. But, it doesn't mean radical islam can be defeated. My fear is that unless they embrace democracy and the freedoms it brings, radical islam will only get stronger in some places. And when it does, it'll want to return to the height of it's power, the 15 century. And that could mean war for us NO MATTER WHAT WE DO. This is the point I try to make to people. We have to keep an eye on them.
Most muslims in the US are fine, so it does seem to me if we reduce some of the symptoms we could find a cure. We'll have to hope and see.