North Korea Bullies the US and South Korea

So North Korea sinks a South Korean ship for no reason, killing almost 50 people and no says "if you do anything about it, we will declare all out war". How is this any different than a bully in the schoolyard who trips a smaller kid and then tells him "what are you going to do about it?" None than I can see. It also seems to me that if you do nothing then they will only do something bigger. You can't just let your citizens be murdered with no answer. It will only get worse. What do I suggest? If Dick Cheney were in government, I would be in favor of a strike on their nuclear facilities and leadership. Now I think the only thing that would be possible would be sanctions. Then the ball is back in their court as they have declared that if sanctions are declared, they will strike. Now let's see if we can call their bluff and make them look weak for a change.