The situation on the Korean peninsula looks very precarious to me (and to many other observers). There's the classic, oft-repeated political tension caused by the provactive acts of one party – politicians are lining up either in the appeasement camp (though of course they describe it as “caution” or some other positive word) and the stomp 'em into the ground camp (couched of course as “consequences” or some such). But however they word it, the choices are essentially between appeasement and attack.
A middle ground seems impossible on this: if one country is blatantly attacked by another, causing deaths and the destruction of property, there really are only two choices: either one responds or one does not. Both choices have consequences.
Personally, I lean toward “attack”, though not necessarily in the military sense. I can see at least two different responses that might work: either economic sanctions of the effective variety (very difficult to achieve unless China reverses its policies toward North Korea), or an obvious retaliatory military action (say, sinking the entire North Korean fleet, which I think consists of about 12 vessels). Both of these actions carry the possibility (perhaps even the probability) that North Korea will escalate the conflict by attacking South Korea. We know that in the long run North Korea would lose such a conflict, but in the short run the damage to South Korea might be considerable.
This is exactly the sort of threat that every penny-ante dictator uses as his real weapon, with the real objective of short-term benefit from his adversary's appeasement. We're decades down that road with North Korea; none of our appeasing moves have brought tensions down one whit. In fact, quite the opposite. I think it's time for action.
Then there's the political reality of America's current administration. It seems most unlikely that they could ever rouse themselves to effective retaliatory action, or even effective backing of our South Korean ally (other than through words). If I were in the South Korean government, I'd be quite nervous about this...