The problem isn't the size or funding of Israel's military. It's not Queensbury rules where you’re supposed to have a fair fight or anything - I'm not sure any military would or should operate that way. Same goes for the proportionate response. Things really wouldn't be better if Israel matched Hamas's strategy of just randomly launching hundreds of missiles in the general direction of Gaza. The problem also isn't that Israel remembers or places a lot of importance on the holocaust.
The problem is that this is a cycle that is ongoing, and it's always the same. Hamas knew that by launching hundreds of missiles into Israel that they would get exactly the response they got, because Israel always responds this way. Hamas make a big show of defending Gaza, and the Gazans think "Well, Hamas is protecting us and Fatah (who run the Palastinian authority) are doing nothing so we'll keep them as our leaders, thank you very much".
Israel has an election coming up. At about this time, even though Hamas has been firing missiles for months and months, it's looks good for the incumbent government to launch an offensive and 'protect' the Israeli people from missiles. The opposition, lead by a crazzed Right-wing nutter, is promising much tougher action on the Gazans, and will most likely get voted in.
And the cycle will begin again in 6 months time.