It was a failure of diplomacy though. That is what you don't get. Diplomatic problems that arose here:
1. Hitting out of an active hostile
2. Retaling the retal instead of PMing the kd and accepting the punishment
3. Not negotiating with the kingdom they retal'd because OP's kingdom wanted to be big, bad bullies.
You may say razekilling in war isn't justified, but it is. It could have been prevented if any of those above 3 problems had been dealt with in a different way and/or a message was sent to the monarch.
As a side note, your notion of "razekilling is making players leave the game" is ridiculous. It's not and you should stop suggesting it. Making a new province isn't even a big deal and its only 24 hours protection.