Terrorism is psychological warfare aimed at a civilian population. It could be an expression of frustration; an act by one who doesn't care, or cares exclusively and consumingly. And it is horrific, disgusting, and morally reprehensible.
The word is not merely propaganda, it is a word whose extremity exactly conveys the revulsion and moral judgement of the speaker. As with any label, you run the risk of superficiality and preoccupation with simplified narratives, but "terrorism" is NOT just propaganda, and it deliberately conveys more than "acts of violence". (A clinical term with its own problems of distancing audiences from the immediate reality.)
I wrote this because your last sentence seemed to imply something that I've noticed crop up in these kinds of discussions: the (typically Western) assumption that there is legitimacy to both sides of any conflict, and that, recognizing this, a diplomatic solution can be achieved. I've yet to see concrete evidence that this is the case. Short of deprogramming, how do you reason with a group of people brainwashed to be fundamentally unreasonable?