Honest question: what was Hamas' long-game with respect to kidnapping Israelis? Did they think Israel would just negotiate rather than retaliate?

It was palestinian territory and israel were the invaders, that was the beginning of the killing and exiling of palestinians from their own land.

Diaspora Jews would be better classified as refugees than invaders before hostilities began. They started out legally purchasing land in Palestine, not killing and exiling people for it.

As for the source of those initial hostilities:

among the first recorded violent incidents between Arabs and the newly immigrated Jews in Palestine was the accidental shooting death of an Arab man in Safed, during a wedding in December 1882, by a Jewish guard of the newly formed Rosh Pinna. In response, about 200 Arabs descended on the Jewish settlement throwing stones and vandalizing property. Another incident happened in Petah Tikva, where in early 1886 the Jewish settlers demanded that their tenants vacate the disputed land and started encroaching on it. On March 28, a Jewish settler crossing this land was attacked and robbed of his horse by Yahudiya Arabs, while the settlers confiscated nine mules found grazing in their fields, though it is not clear which incident came first and which was the retaliation. The Jewish settlers refused to return the mules, a decision viewed as a provocation. The following day, when most of the settlement's men folk were away, fifty or sixty Arab villagers attacked Petach Tikva, vandalizing houses and fields and carrying off much of the livestock. Four Jews were injured and a fifth, an elderly woman with a heart condition, died four days later.
By 1908, thirteen Jews had been killed by Arabs, with four of them killed in what Benny Morris calls "nationalist circumstances", the others in the course of robberies and other crimes. In the next five years twelve Jewish settlement guards were killed by Arabs. Settlers began to speak more and more of Arab "hatred" and "nationalism" lurking behind the increasing depredations, rather than mere "banditry".

An accidental death that could have been resolved legally instead resulted in mob violence by Arab Palestinians against Jews.

In fact, most of the early conflicts between Jews and Arabs in mandatory Palestine were instigated by Arabs.

Then there's the Jaffa riots of 1936, started by the robbery and murder of Jews at a roadblock. This violence spilled out into a general revolt against the British occupation of Mandatory Palestine which convinced the Peel commission and the diaspora Jews in Palestine that a two-state solution was needed, and eventually led to Britain's withdrawal from the area.

They could have lived together in peace but Arab Palestinians started civilian violence, refused to make concessions, and outright rejected this two-state solution. (Look at the map and see how much more land they would have today had they accepted this plan instead of going to war.)

So, in summary, Arab Palestinian Nationalists took a hardline position early on, blamed Jewish immigrants for their problems, instigated violence against them, refused a two-state solution, then went to war with the Zionists, losing spectacularly. While they have successfully portrayed themselves as victims to many on the internet who have more sympathy for the underdog, the realpolitik situation of the conflict they started does not seem winnable. There were many points in this conflict where diplomacy, restraint, and concession would have led to a different outcome.

Once the conflict was started atrocities happened on both sides, (most notably by Irgun on the Zionist side,) but let's not forget how it started, or for that matter who can end it today without more lives lost.

From the modern day fraction of territory palestinians now have, and the massive death toll of palestinians, you can see how that has proceeded over time.

Not well, at this rate their constant belligerence and hostility seems to be leading to them losing everything.

Any resistance to this extermination just gets used as justification to continue it.

Again, if modern Israel wanted extermination, they have had the means to do so for some time. I believe you are misrepresenting their position and their goals.