Tourist, with the greatest of respect, if grenades had or were being thrown, I would imagine that the rules of engagement would have allowed fire. Furthermore, to go chasing after guys throwing grenades is suicidal.
The damage done by this is not to the reputation of the service over here, it's on the ground in Iraq. There would have to be a full scale civil affairs program going on, and this sort of stupid incident affects the success of that program.
To put it another way, what if this incident is the final straw for some kid to start jihad and become a suicide bomber?