Longer: Bernard Chazelle's most recent excursus at A Tiny Revolution.
What do I think? I believe that terrorism is morally worse than collateral damage because of its unique alignment of causality and intentionality. However, the distinction is a philosophical subtlety. It is morally razor-thin. Kantian ethics would not recognize it. Neither would consequentialism (America's dominant moral doctrine). In secular philosophy, one could draw a distinction within the context of what's called "virtue ethics" but name anyone bloviating about terrorism who does that. Perhaps a theological argument could be made. But, by and large, I believe, the distinction is mostly a matter of bad faith. As is most of public discourse on foreign policy.Frankly, I think Bernard's argument is too fine. "Terrorism," even according to the least critical definition of the subject, amounts inevitably to the exertion of violence against innocent civilians for the purpose of achieving political ends by means of intimidation.
A car-bomb in Bagdhad, or a suicide bomber aboard a bus in Tel Aviv, or a drone attack in the Swat Valley are no different in that regard.
(P.S.: The patch pictured above is real, assigned to participant "pilots" who maneuver un-maned drone bombers over Afghanistan and Pakistan (and wheresoever else we may only guess), attacking alleged "Taliban" strongholds and randomly killing civilians along with whatsoever "terrorists" they may also eradicate) for the purpose of effecting political change. A "razor-thin" distinction, indeed.