I would offer that it is not really surprising that there has been a blurring over recent years. Use of terms like illegal enemy combatant (along with the 'advanced interrogation' of persons such as KSM) etc have hardly been helpful in maintaining distinctions. KSM was pretty clearly a terrorist but has not been treated as such (as opposed to individuals like his nephew Ramzi Yousef).

Individuals who have been involved in what (I would argue) are insurgent/guerrilla activity have been classed as terrorists, and in some cases vice versa. I think, at least from the UK perspective, that the crossover/interaction between insurgent elements in Afgh/Pak and those involved in terrorist activity in the UK may also contribute to this trend.

Are individuals from the UK Pakistani community who travel to Afgh/Pak to fight against ISAF terrorists or insurgents? On balance I'd say the latter, but if the UK police nab them at the airport, they'll be charged under CT legislation. And those same individuals may well go with the intent of fighting there but return to commit a terrorist act in the UK. (The recent stories about UK forces hearing Brummie accents on Taleban radio channels is a case in point).

The use of military means and tactics (such as assassination using armed drones) to eliminate individuals suspected of using what Wilf categorizes as 'criminal' violence for political means must also have had an impact - (i.e. the use of military counter-insurgency style tactics to counter/suppress a terrorist threat) - so it is not surprising that this is feeding back into policy thinking.

What about the Israeli perspective? Palestinian use of suicide attacks against civilian targets (which I'd class as terrorist) countered with assassinations/ airstrikes. Not really a policing led approach (though I'd acknowledge the Israelis have a lot of Palestinian terrorists/insurgents locked up as well).

The distinction is being lost, at least in part, because the counter-measures being used to combat the two have converged somewhat, because political expediency has called for it and because those individuals involved are sometimes interchangeable.

In terms of why the distinction matters, isn't it to do with conferring a degree of legitimacy on those you are combating? PIRA always sought to claim it was a legitimate military organization, with POWs, uniforms etc - the British always sought to class them as terrorists and therefore criminal. Hence such things like the hunger strikes and police primacy.