Im almost 100% that she meant baptism in the Christian source of the world.
I would add, just in passing, that there's nothing in the quotes from Palin you posted that implies any reference to Christianity, with the exception that Baptism is a sacrament in some forms. The word baptism is also used, however, secularly to refer to cleansing and also to refer to an introduction into a new way of life. She may simply be saying that she'd show terrorists what she'd do to someone who wants to destroy her society and country.
Shes a complete and utter moron.That said, Sarah Palin is no longer a politician in the normal sense of the word and is much more a political commentator, much in he style of a Bill Maher - they feed off controversy and saying outrageous things to get media attention. Clearly she succeeded here.