|Hey! How'd he get such a hot babe?|
Unlike most other nations, North Korea has nothing of value to offer the world. They are an impoverished, backward nation without enough agricultural, manufacturing or hard currency output to meet even their own most basic needs. Really, the only demand the West can make on them is to stop being such a dick. But being a major dick is their only export product, and the only quid pro quo they would see as being worth accepting would have to be nearly both infinite and eternal.
Like a spoiled child seeking attention by demanding concessions in exchange for (temporary) good behavior, the best approach would seem to be to simply ignore the tantrums. The assumption would be that Kim doesn't really want war, and China most certainly doesn't want to see his government collapse and the Peninsula re-unified under the auspices of Seoul and the US. The risk would be that the Generals would continue to escalate to try to regain the initiative in "negotiations" to the point where something very bad happened almost of its own accord.
But if we are to be honest, we have to recognize that this strategy isn't simply being driven by the North Koreans. Western governments, particularly the US military and political leadership, long ago fell into the habit of threat inflation. They discovered that they could get everything from budget increases to anti-democratic legislation to outright aggressive war by creating the image of catastrophic or existential threat. This culminated, of course, with the ridiculous vague conflation of various weapons programs as "Weapons of Mass Destruction" in Iraq, creating the utterly artificial construct that the Iraqis, economically and militarily crippled though they were, represented an actual threat to the United States of America. It is impossible to effectively describe the magnitude of this delusion, but there can be no doubt that it was created for political purposes and it proved politically effective.
So now we have another impoverished third world nation making outrageous claims as to their military capacity, and once again our Generals and Legislators and Pundits respond predictably, accepting the claims at face value or even giving them additional gravitas all on their own. While it seems obvious that the best diplomatic and military approach to North Korea would be to ignore their irrational ranting - they don't want war, and won't start one on their own - our very own government and media leaders grab onto Kim's threats because they see them as an opportunity to increase their own funding, prestige or leverage.