What a great post. Lucid and to the point. As your quote says, children are not born bad (although I would counter that they are born good in the sense of without hate and any of the motivations to wrong others). If a child commits a heinous crime against another, he is simply reacting to the way he has been treated - i.e. without love - and to the kinds of behaviour and ways of communicating anger that he has been shown by adults around him. Any act he commits is not one he is guilty of, it is the adults that are bringing him up who are guilty.
As to the solution, who knows but as you say if future generations are to be free of such crimes, locking up children is surely not the way forward.
Education, education, education - and not in the narrow sense defined by the State's "targets".