Terrorizing one's own is a sound insurgent tactic. The goal is to create a climate of fear and to discredit the State, and eventually create a situation where the population comes to the realization that only the insurgents can protect them, so they feel compelled to opt in with the insurgents.

The counterinsurgent could counter this if he can and will provide adequate levels of protection for the population. Obviously the insurgent isn't trying to win hearts, but rather win control over the population, and coercion works. The Thai government needs to act quickly and stop taking half steps.

I'm only speculating, but based on the tactics the insurgents are using, I don't think they have a popular base of support.