[Lush]

I think that to show mercy is one of the greatest things a human (or Hobbit) can do. And like all great things, it's not exactly as easy as buttering a piece of toast. I can't tell you what I would do in Frodo's place. But what I can tell is that for me, killing Gollum (and remember, Kuruharan, Gollum is no Orc, he is a creature very much separate from their whole race, and I think Tolkien made that clear; no one would show mercy to an Orc, because they wouldn't be in a position to do so) would be like killing a part of myself.
And while Gandalf is a product of fiction, his wisdom is certainly applicable to the world we live in today.