The real world analogy doesn't fit? Oh, well, I'm sorry but I grew up in the real world so I kind of tend to think in real world terms. Can't really help it, nor would I want it any other way.

I don't see you providing a better solution, because obviously just letting him go wasn't one. If it had been just Naruto and Sakura alone who wanted him back then it would have been a different story, but it seemed to be the official stance. And as such their options were limited: Maybe they would have tried to get him to stay back willingly by assigning him to different work, like ANBU, and granting him exclusive teaching (from Kakashi or anybody skilled enough). It might have been worth it to retain the Uchiha bloodline. If it hadn't worked, at least they would have tried. Or maybe they would have brain washed him with some special jutsu.

We already saw Itachi would be capable of beating any Konoha ninja. It would be foolish of Konoha to let similar potential to fall into Oro's hands without a fight. No matter if it goes against the free will of somebody.