When someone calls your bluff, it's game over. Everything changes from that point forward. Either you can never act that way again, because people will know it's a bluff, or you freak out and do something terrible and then one way or another will be dealt with (police called, go to jail, get put on ignore, get an ass kicking, get nuked to complete annihilation, whatever).
The tragedy here is that America has subsidized North Korea's behavior and ability to exist. We're partially responsible for their regime thinking it can keep doing this, and naturally their threats have to escalate. Their bluff should have been called a very long time ago. It's like taking in someone bullying you, clothing him, feeding him, etc.
The key point is that this is really a proxy war between China and the US. North Korea exists only as a proxy of China - they cannot be defeated in war until China allows it, they will continue to exist as they do as long as China allows it, and the regime will collapse about 10 minutes after China stops supporting them. The current state of affairs exists because China likes having a thorn in our side and very much does not like having a close US ally on their border.
The only plausible end that I can see is them doing something so provocative that China gets fed up with them and afraid that they'll be drawn into a shooting war, and forces the Kim dynasty out and somebody who is reasonable and favors Chinese-style reforms in.
If you were just asking to be nice, I have a few old friends in South Korea (in the military, teaching, and local) but no family.
There's an interesting segment in this psychology lecture about irrationality that seems related:
http://www.youtube.com/watch?v=i5IrSEIPdwk#t=44m36s