Quran 5:33- “The punishment of those who wage war against Allah and His messenger and strive to make mischief in the land is only this, that they should be murdered or crucified or their hands and their feet should be cut off on opposite sides or they should be imprisoned; this shall be as a disgrace for them in this world, and in the hereafter they shall have a grievous chastisement”
How does the above verse encourage killing of innocents? Let’s Read the passage again,
“…the punishment of those who WAGE WAR AGAINST ALLAH AND HIS MESSENGER AND STRIVE TO MAKE MISCHIEF IN THE LAND IS ONLY THIS.” – Qur’an 5:33
Although the punishment described in the verse might sound harsh to some, but the passage is only to those who spread mischief and were at war with Allah and His Messenger.
Read also: ‘Quran 5:33 In Its Historical Context‘
The above verse was revealed concerning some people from UKIL who came to Madinah, ate some food and later in the day murdered and robbed an innocent shepherd, 1400 years ago. The criminals tortured and then literally butchered this innocent man to pieces. This verse in turn was revealed to deal with those who make mischief in the land. To read further on the criminals from UKIL (or Urayna), who murdered the innocent shepherd, read the following article here.
Sayyid Abul Ala Maududi – Tafhim al-Qur’an – The Meaning of the Qur’an
55 Here “the land” refers to that country or territory in which the maintenance of law and order is the responsibility of the Muslim State and “to wage war against Allah and His Messenger” is to wage war against the righteous system of government established by the Islamic State. As Allah likes that such a system of government should be established, He sent His Messenger to establish an equitable system of government, which should guarantee peace and justice to human beings, animals, trees, vegetation and everything in the earth, which may enable human beings to develop to -the fullest their natural capabilities; which should exploit natural resources of the earth for the true progress and improvement of humanity and not for its destruction. It is obvious that any attempt, big or small, to undermine or overthrow such an established system, is in reality a war against Allah and His Messenger. It does not make any difference whether that mischief is created by criminals and murderers who cause disorder in the settled and peaceful society, or by armed forces who attempt to overthrow the Islamic State and establish some corrupt un-lslamic system instead. And every sovereign treats such a violation directed against his authority or against any of his officials as war against himself. 
43 The term ‘apostle is evidently genric in this context. By ‘making war on God and His apostle’ is meant a hostile opposition to, and wilful disregard of, the ethical precepts ordained by God and explained by all His apostles, combined with the conscious endeavour to destroy or undermine other people’s belief in God as well.
44 In classical Arabic idiom, the ‘cutting off of one’s hands and feet’ is often synonymous with ‘destroying one’s power’, and it is possibly in this sense that the expression has been used here. Alternatively, it might denote ‘being mutilated’, both physically and metaphorically – similar to the (metonymical) use of the expression ‘being crucified’ in the sense of ‘being tortured’. The phrase min khilaf – usually rendered as ‘from opposite sides’ – is derived from the verb khalafahu, ‘he disagreed with him’, or ‘opposed him’ or ‘acted contrarily to him’: consequently, the primary meaning of min khilaf is ‘in result of contrariness’ or ‘of perverseness’. 
Malik Ghulam Farid:
741. Islam does not hesitate to take extreme measures when the interests of the State or society at large so demand to uproot a dangerous evil. It refuses to pander to the false sentiments of emotional visionaries but follows the dictates of reason and sound judgement while prescribing punishment for public offences. The punishment prescribed here is of four categories, the form of the punishment to be inflicted in a particular case would depend upon the attending circumstances. Awarding or imposition of punishment is the concern of Government and not that of any individual. The words ‘expelled from the land’ according to Imam Abu Hanifah signify imprisonment. 
Maulana Muhammad Ali:
33a. The words used here imply originally all those opponents Islam who waged war on the Muslims and made mischief in the land by CAUSING LOSS to the LIFE and property of innocent Muslims who fell into their hands. But it has generally been accepted as including all dacoits and murderers who cause disorder in a settled state of society. In fact, when war came to an end in Arabia and the Kingdom of Islam was established over the whole peninsula, the enemies of Islam, being unable to oppose its authority openly, resorted to dacoity and murder to disturb the peace which was now established in the land. Hence, though it is such enemies that are primarily spoken of here, the words are general and include all cases of murder and dacoity.
The punishment described is of four kinds, which clearly shows that the punishment to be inflicted in any particular case would depend upon the circumstances of the case, as well as the time and place where the crime was committed. For instance, if murder has been committed in the course of dacoity, the punishment would include the execution of the culprit, which may take the form of crucifixion of the offence is so heinous or the culprit has caused such terror in the land that the leaving of his body on the cross is necessary as a deterrent. In other cases, the punishment may be imprisonment, where the severer punishment of cutting off of hands is deemed unnecessary. The judge would take all the circumstances into consideration and inflict such punishment as he thought necessary.
A particular case dealt with under this verse was that of a tribe called ‘Urainah. Some men of this tribe came to the Prophet, and accepted Islam. They fell ill and were sent by the Prophet to a place at a little distance from Madinah for change of climate. But when they regained health, they killed the very people who had served them and went off with their camels. Then they committed dacoities and violated the chastity of women and they were severely punished… 
 Sayyid Abul Ala Maududi – Tafhim al-Qur’an – The Meaning of the Qur’an – http://www.englishtafsir.com/Quran/5/index.html#sdfootnote54sym
 The Message of The Quran translated and explained by Muhammad Asad
 The Holy Qur’an Arabic Text With English Translation & Short Commentary By Malik Ghulam Farid Page 244
 The Holy Quran Arabic Text with English Translation, Commentary and comprehensive Introduction[Year 2002 Edition] by Maulana Muhammad Ali page 257
Should we understand this entire verse to only apply during the time of the Prophet (pbuh)?
If not, I feel like “mischief” is too broad of a definition to be applied today. Anyone who shows the least bit of conflict with Islam as a faith would be subject to death.
Allahu Akbar. I have written an in-depth explanation of this verse giving 7 logical reasons why it propagates peace and harmony if taken in its correct context. You can find the article here
In order to be ethical and fair, this is a rule to be applied to all. Which means that it should be applied to Palestinians and Arabs who committed mischief and waged war in the land against the indigenous Jews who have returned, as Allah has promised.
To disagree would be hypocritical, and the Quran tells us in Sura 63 what happens to those.