I have little doubt flooding tunnels with either water or inert gas like CO2 was considered.
Water would have complicated recovery and assessment procedures, inert gas would have to be purged afterwords (and would raise the spectre of gas chambers, something historically reminiscent of last century's death camps--and no doubt repugnant to both Israel and the world.)
That Hamas and other terrorist organizations use the communities as human shields is nothing new. They've been launching missiles and mortar strikes from schools and hospitals for decades, so it's not much of a stretch to just digging in underneath such, and the presence of building with a high flow of people and transport makes it easier to stock up and move weapons and combatants.
Between the tunnels and hiding in plain sight, they've effectively taken pages out of Ho Chi Minh's playbook, and adapted those techniques.
Israel has the resolve, opportunity, and ability to negate that, if the world will quit assuming it knows more about their next door neighbors, and will quit supporting the terrorist organizations, so many of which are masquerading as benevolent NGOs.