If, as you suggest, us atheists could not understand the mind of god as we are humans then what you say makes good sense. After all, this god might some much higher purpose in his mass killing that anything we can think of. (Of course this god is whole lot nicer that the Babylonian gods who also sent a flood to kill the people but because they were too noisy!)
The major snag with this line of thinking is the fact the it is often argued in favour of god that he is the one that set up all the laws of nature and is responsible for everything going on the way it does. I suppose that implies he makes sure the moon doesn't crash into the earth and so forth. In practice this means that this god has produced a universe that has laws we can work out and that we can use to predict things in the future. So this is a god of order.
Combining these two ideas, I think I agree with you, Patrick, that god probably did plan to kill everything in the world. I think that sort of extermination is quite within his character and his way of working. I suspect Jesus would violently disagree with this sort of action, advocating, as he did, turning the other cheek. There's nothing in Jesus' teaching to suggest fighting wars and mass killing are OK. Quite the opposite - he defines thinking badly of someone is the equivalent of murder. So, yes, this god in the OT certainly seems capable of killing any number of things - but there is catch....
I disagree with your depiction of God using words like extermination, as if God is evil and His purposes are not good. From my point of view it lowers the accountability of human beings at that time. I believe they were accountable for their sins and yes it even affected their children, who were killed along with their parents in a few cases. If God were true, then it makes sense to me that He has every right to take away the lives that He gave in the first place. For His purposes. It may be entirely possible that those children were given eternal life.