Hilary Benn puts forward two different arguments for ditching the phrase 'the war on terror': first, that it gives the disparate groups being fought against a shared identity and thereby strengthens them; second, that it suggests that 'hard power' might suffice to defeat them when it won't. A.C. Grayling strongly endorses these arguments at Comment is Free. They're not as bad as 'You can't make war on an abstract noun'. But, otherwise, they don't strike me as persuasive at all.
The only shared identity you 'give' terrorists by identifying them as that is one they already have: of being willing to use the same murderous methods to achieve their ends and (generally) having some sort of ideological back-up for doing that. The phrase 'war on terror' doesn't create these common features; they're already there. One could, I suppose, decline to emphasize them, but then one needs a reason for this beyond the false one that there are no such common features. Grayling, for his part, writes:
The first thing Benn is right about is the effect that the phrase has in sorting together all those non-state, self-constituted groups who choose violence as their means. A twofold problem results: one, correctly nominated by Benn, is that it offers the disparate groups a common identity, and with it a spurious justification to which they can therefore help themselves.First of all, choosing violence is not what characterizes terrorist groups, properly defined. It's that they choose violence against civilians targeted more or less at random. Second, Grayling goes beyond Benn in saying that sorting together disparate groups offers them a 'spurious justification'. But how it is that identifying something in common between groups that do indeed have that thing in common provides them with a justification, spurious or other, he doesn't explain. It would be like saying that a 'war on crime', aimed (say) at breaking up a number of crime syndicates, would give the latter a spurious justification simply by bringing them all under that one phrase.
As for the claim that 'war on terror' must incline you to the use of 'hard power' only and the neglect of 'soft power', I suppose it might do that; but it only will if you think wars are won exclusively by use of power of the former kind. You needn't think that. As Grayling himself says:
... whereas the hard power of bullets and bayonets can win battles, it is only soft power that can win wars...Some might demur at 'only'; but, in any case, it rather undermines the support intended for Benn's argument. If A.C. Grayling is right in what he says here, calling the war on terror a war should help to focus people's minds on the need for soft power.