Its whole point is that it weakens the prestige of the state being attacked, i.e. it's not a personal but rather a national level attack, hence the retaliation.
The government and the media are the ones that leverage terrorism to instill terror.
Terrorism as a tactic in itself is a proven failure. It requires the support of media and government to have any impact.
Which makes the conspiracy theories of our own governments deliberately encouraging terrorism quite realistic.
Especially given that it has happened before (CCC, Gladio, etcetera). Western governments have never shied away for faking or aiding terrorism, it's remarkable that we keep referring to this as tin foil hattery despite a) the long track record and b) the simple fact that they are the only ones who profit from it.
I think there's two sides to that argument: what victims think and what terrorists think.
Terrorists believe that they instill terror and historically (and still in some countries) that was often the case.
> we just defiantly went about our business the same as before.
That is the American and PARTIALLY western way of dealing with it. It also happens to be the only viable thing I can think of to do against terrorism - although it's not effective at halting terrorism:
The "defiant" solution is sadly only effective as a deep cutting form of revenge, I doubt it will truly ever deter terrorism as it takes a special kind of stupidity to think that fear will turn hearts to your cause in the long run. As defiantly as America stands against terrorism; so will terrorists blindly continue to believe that it actually achieves anything.
This is possibly something that only evolution could fix.