I don't normally get into this type of political debate but ...
>Should Israel be allowed to attack terrorist organizations in Palestine?
yes. I think actual terrorists should be eligible for being attacked anywhere. The real question you didn't ask is who gets to label what is and is not a terrorist? Black Panthers were considered terrorists in the US in the 60s and 70s but heros to the Black community now. In the US, again, our founding fathers were all considered terrorists by Britain.
>If so, is there an "acceptable" level of civilian casualties (collateral damage)?
The "acceptable" level of civilian casualties or collateral damage is zero. With the understanding that accidents happen, but all plans should be for zero.
>Does that level change if the terrorists intentionally use civilians as human shields
No. This routinely happens in the US over the years where criminals or even terrorists take hostages on a plane, bank, school, hospital, or other place with innocent people. We do not drop bombs on the building killing all the innocents to get at the evil-doers. Have you noticed that no country in the Western civilized world would even consider that? Modern military should be able to go in and do surgical strikes or a surrender. Hell, in the US, we have small towns with volunteer SWAT teams that do this routinely with basically 100% success rate.
I think the biggest problem, which is covered in most war-time conventions, is that you should treat civilians and innocent people the same as you would treat your own innocent civilians. This is somehow being argued that it does not apply in the middle East or Ukraine or Russia where people just remotely drop bombs and blame "human shields".
Not too long ago the US would be ashamed to admit it even did something like this, because it seems like incompetence or cowardice, but now we support it somehow?