I'd still choose democracy. I'm not saying that democracy is always wrong, just that you can't keep a democracy wrong when the elitest superstructure (Those at the top of the political food chain, not DQNers) decide that they get to play fast and loose with reality and morals.
That's just reality. Genocide, use of WMDs, arbitrary arrests without trials, torture, and other such things are wrong. Just because you can come up with a rationalization for doing those things does not make them OK. The reason is that there will always be a justification -- there is always some enemy around, whether forgein or a political group (remember our millitias?), and therefore it's a blank check.
Criminals are the same way. They blend in with their neighbors. They don't wear colored "I'm a criminal" jerseys, they don't wear masks when they aren't commiting a crime. They go after civillian targets -- they rob 7-11, not the police station. Etc. That doesn't mean you get to raid every house in the area and shoot anyone who resists having his door kicked in.
I'll defer to the generals on how to identify them, however it is necessary to identify them, because every time we kill a civillian, at least a few of his family or friends swear revenge on us. Having a cart blanche to kill anyone that looks at you funny isn't going to convince the average Iraqi to choose our side. And we need the average Iraqi with us to win.