Perhaps I am naive, but I don't think this is that subtle an argument. A terrorist is someone who engages in terror inducing attacks on civilian populations. A terrorist is someone who ignores all the civilized rules of war and engages in "total war," without regard for any boundaries or accepted conventions, such as respect for human rights. A terrorist seeks to use obscene and gruesome methods in order to stampede groups of people, or whole societies, into a particular action. Terrorist organizations habitually and characteristically engage in actions that are meant to maximize civilian casualities and cause panic. This is the entire point of terrorism and what separates it from civilized or legitimate military actions.

Total war (with attendant use of terror techniques) was the rule for most of man's existence. Sherman's march to the sea would be a historical example of the mixing legitimate war with terrorist elements. Catapulting severed heads or plague infected bodies over the walls of a city would be another. Those techniques are no longer accepted and would be considered war crimes. The perpetrators of such actions would face war tribunals. Mankind decided to reject completely such methods of war because they were too odious and morally offensive to be allowed to continue. Terrorists are basically barbarians who harken back to an earlier, bloodier and more horrifying era in human history. I assume there is no one who longs for those "good ole days," is there? This question has nothing to do with the legitimacy of either side's complaints. A terrorist is someone who consistently and intentionally uses the techniques of terror against civilian populations. It has a bad connotation because it is evil to behave this way. All of civilized humanity condemns such behavior because our wish is to eradicate it forever.

Now, in Iraq you have one side who is attempting to enslave the other side and establish a medieval, theocratic totalitarian state; oh, and who also habitually uses the techiques of terror. On the other side, you have people who are trying to establish a reasonably open, representative democracy. Is it really all that useful, honest or decent to insist on using "neutral" language to describe both sides? Just asking.