There is a lot more to this way than just the hostage situation - Israel has been in control of Palestinian territory for a long time (they consider it theirs) and they have been fighting with the Hamas organization for years now. This is the single worst escalation of it.

Hamas doesn't want peace. The status quo is domination of Palestine under Israel government - erasure of Palestine effectively if they laid down arms and disbanded. They want liberty, and payback for hardships.

There isn't reason to believe Israel will stop the attacks on return of the hostages, as they have gone overwhelmingly above and beyond the total damage done by Hamas (even comparing women and children victims vs. the concert raid that started it all) and given Netanyahu's far right government is at the helm, so your second point has merit.