My opinion is that the choice to use knock-out gas was based on a couple of variables that made any other tactic more risky.
First, there were women terrorists with explosives strapped to their waists. If a tactical team enters the room, at the first flash-bang or head shot, one or more of those women would have tripped the detonator and blown up everyone around them.
Second, the use of the knock out agent (whether it was narcotic-based or chemical weapons based) would have worked to disorient any terrorist with a gun and made it more difficult for them to aim and shoot hostages or the rescue team. In a room full of hundreds of people, just using flash-bangs with a tactical entry ran the risk of terrorists (probably suicidal ones at that) putting rounds into as many hostages as they could before getting shot themselves, or detonating the mines they had scattered around.
The use of explosives by the terrorists changed the dynamic of the situation. If they had guns only, then a straight tactcial entry with a shoot-em-up approach might have saved more innocent lives. But I can't help but think that, on that first bang or pop, the terrorists would've detonated their bombs and mines, killing nearly everyone involved.
It was an ugly chice the Russians had to make. They had 20 Million people killed in World War II; to them a couple of hundred civilian fatalities isn't much compared to halting this kind of stuff from happening again. I think they sent a message: Do this and we'll kill our own people rather than give in to your demands, and we'll cap any of your people who are involved. Zero chance of success for the terrorist.
In Beruit in the '80s, Hezbollah took a Russian diplomat hostage. The KGB went out and found a mid-level Hezbollah leader. They executed him, cut him up and sent him back in a box. Hezbollah released the diplomat. Sometimes the Russians know exactly what they're doing.
