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"I repeat that I don't have a right answer; but I suspect the second answer is the one most governments would take, as they do when provocative marches are planned. "
Yes, you're probably right. If I were an executive, I'd like to think I'd choose the first option - because I don't think it's fair or reasonable to hold anyone except those that commit violence responsible for that violence. But I don't know for sure, because I'm not an executive.
Regardless, though, even if my choice were the second one - I don't think anyone would describe this as a desirable state of affairs. Notice the backlashes against Islamic attempts to censor entertainment - the International Draw Muhammed campaigns launched online by people who can't easily be targeted by fanatics. Just because some exectives are threatened into submission by theocratic bullies, this does not mean censorship is OK.
In fact, I think it proves the opposite - the only instance where it might be acceptable to avoid offending people is when they're threatening to harm you or your family if you don't. I don't see why that kind of moral protection should surround the Royals - or anything in the public domain, if I'm honest.