I think that Israel is playing the game exactly the way that Iran wants them to. The unreasonable level of violence against civilians is isolating Israel diplomatically and deeply tainting US reputation for relatively little cost.
Netanyahu is playing this game because his survival depends on it. As soon as war ends, he is kicked out and a bunch of judicial processes fall on him that he has been avoiding with his immunity. He has a vested interest in prolonging the conflict.
Hamas has a vested interest in prolonging the conflict too, because it means that they can be “freedom fighters” and “martyrs” instead of terrorists, and assassins, and means a reasonable amount of people flock to them. It also gives them legitimacy compared to the Palestinian Authority