What should be the nature of our penal system?

John Venebles, the child-murderer of toddler Jamie Bulger has recently been recalled to prison for breaking the terms of his licence / parole. I saw many people on TV saying things like ‘He should never have been released’, ‘they should have locked him up & thrown away the key’. Baring in mind he was 10yrs old when he committed murder, what do you think? Should the penal system be about punishment, or rehabilitation? Can people change?
http://news.bbc.co.uk/1/hi/england/merseyside/8546834.stm