If a State A attacks another State B's military apparatus knowing full well that there will be civilian collateral damage, then why is it that even if State B retaliates by intentionally targeting civilians, it's terrorism?

A brief addition to Jonathan's fine response. Of course different people define "terrorism" differently, but it looks like you're using the word to mean "intentional targeting of civilians" or something like that (independent of what the motive is for targeting the civilians). One (of many) ways to think about the difference is this. What's wrong isn't the "killing of civilians" per se, it's the "killing of civilians for no (or beyond any) legitimate military purpose." If we then permit the killing of civilians for bona fide military purposes (e.g. as collateral damage of bona fide military attacks) but forbid the killing when it lacks such purposes, then, overall, long term, over all conflicts (assuming combatants all follow these moral rules!), there are likely to be far fewer civilian casualties than if we treat the two cases identically. Put differently, if you could kill civilians at will, then both sides will kill lots of civilians; but if you can only kill civilians as collateral damage, then your...