Kagha is pretty well justified in imprisoning the girl for trying to steal their sacred idol. Which is what Kagha was attempting to do. She was never intent on using the death penalty, at least not based on what the game tells us. She also is visibly horrified when her snake kills the girl.
Arabella's death was an accident. One caused by Kagha's mishandling of the situation, but still an accident.
Out of curiosity does Halsin's punishment of Kagha change depending on if Arabella died or not? I've only freed Halsin twice so far and both times I was able to talk Kagha down with a nature check.
As for the actual topic of the thread, something I think would go a long way to making the Kagha choice more compelling is if we were directed toward investigating her and the shadow druids. So far in all my playthroughs I've never actually found the shadow druid evidence because I've not found anything that tells me I should be investigating anything in the first place. It seems like something you'd only stumble upon if you went snooping on your own.
I also want to punch that one elf druid in the face. One of Kagha's supporters. I can't remember his name but he's in the room with Rath and Loic.