It had every reason to. The Prophets destroyed nearly three thousand ships. That's every reason for massive retaliation alone.
Not if it means shooting yourself in the foot in the process. If there are enemy troops holding a bridge that you absolutely need intact because it's the only way to supply your invasion force on the other side, you'd be a total idiot to blow up the bridge, because you'd be damaging your own cause. No, you'd find some way to get rid of the enemy troops while leaving the bridge intact so that your guys could still use it.
Not to mention as things stood with the Prophets, the Dominion couldn't use the wormhole, but the Federation could. So why would they even think of allowing their enemies even a POSSIBLE tactical advantage like that?
You're making the mistake of assuming that the two sides were equal. The Dominion has been a force of conquest in the Gamma Quadrant for a couple of thousand years, IIRC, and is far more aggressive than the Federation. Logically, it would be a vastly larger and stronger power. I mean, think about it. An empire built on force and intimidation couldn't survive if it sent
all its military forces off to the other side of the galaxy. Its people would revolt and the empire would fall apart, or else its neighboring enemies would invade and overthrow it. Therefore, logically, we must conclude that the majority of the Dominion's forces were still in the Gamma Quadrant maintaining control of their home territory, that they only sent a portion through to conquer Alpha. Yet that small portion was so powerful that even the alliance of the three mightiest states in the region was in serious danger of defeat at its hands.
So there's a fundamental imbalance of power here in the Dominion's favor. The AQ powers weren't that much of a threat even if they did send forces through.
Sure, they have forces in the Alpha Quadrant but they're quite self-sufficent as proven in the early season 7 arc when Dukat collapsed the wormhole. They didn't just fold up and die, they kept on going. It stands to reason the Dominion is expanding in the Gamma Quadrant at a steady pace, so too would the Alpha Quadrant Dominion and eventually they'd link up.
Maybe. But we mustn't make the mistake of assuming the Founders think like humans. The unity of the Link is everything to them. They care more about maintaining their connections to one another than they do about anything else, even galactic conquest -- which is why Odo was able to convince them to end the war by agreeing to return home and stay with them (along with curing their disease). I just don't see them jumping to a plan that would mean deliberately stranding their own people in hostile territory. Sure, they live long and could eventually make their way back home -- but only if they didn't get killed by the enemy before then. And without reinforcements from home, that fate became more likely. As I said, they'd investigate all other possible options for restoring safe passage through the wormhole before they'd consider destroying it.
Besides, isn't it a moot argument? As I've already mentioned a couple of times, the Changeling Bashir sabotaged Sisko's plan to collapse the wormhole and instead made the wormhole so stable that it became impossible for the Federation to destroy it. So what makes you think it would've been any more possible for the Dominion to destroy it? Sure, maybe they had some extra superscience the Federation didn't, but we don't know that. It's kind of a waste to argue the strategic value of a choice that, for all we know, was not even on the table.