1. the original intent of the law was so further away from this scenario that it isn't really applicable in any form. You can see from the first clause that they envisioned a scenario where a soldier is hurt by a booby trapped flag being left in some base. Hence the fact this is part of the mine convention.
2. I am not convinced this actually applies in the legal sense of who signed what and whether these are armed forces at all. Generally intelligence agencies are not bound by international law and regularly do things such as use other armed forces uniforms which is illegal, or simply have non-uniformed paramilitary forces
3. The morale aspect: It is generally accepted among democratic nations that targeted assassinations against terror group members is legal. See US, UK, and a whole bunch of nations that were members of the Afghanistan, Iraq and anti-ISIS coalition.
If Israel had went with that route, each of those 3000 houses bombed would lead to many more dead by the surrounding families, similarly to in Gaza. While in this scenario, most were incapacitated in a non-lethal way (although still horrifying, this is war after all). Making this much better than the alternative