Silviu Dochia over at The Corner Solution has a good post on the economics of terrorism
. He looks at the scholarly work that has been done on the subject, and concludes that you can think about a "supply" and "demand" for terrorism. The "demand" is fueled by Hatred, and strategies to stem terrorism should be focused on reducing that demand. Supply-side strategies are unlikely to be successful on their own.
This pretty much sums up why I feel that the best long-term anti-terrorism strategy is promoting democracy, human rights, a free media, and economic development.
Definitely check out the studies he links to.
has some interesting thoughts about this too.
(Via Simon World
Update: Tyler Cowan
takes up the question of industrial organization in the "terrorism industry": should we prefer monopolistic or competitive Jihad?