How to proceed with terrorists of any kind

Yesterday, a madman with a flag displaying the credo of islam took hostages in a cafe in Sydney, and was subsequently killed by police. The problem is that this happened far too late. It seems like police wanted to negotiate with this guy. However, there's only one way to negotiate with terrorists of any kind:

The advantage of dead terrorists is obvious - they can't shoot hostages. This must be the standard operating procedure world-wide, especially in the west, a region perceived as 'weak' by muslim terrorists.