I think it would be too great of a leap to pin the West's lowered domestic terrorism levels on democracy alone.
There's also another scenario to consider -- try Russia. Would it be considered domestic terrorism when the Chechens or Dagestanis bomb targets in Chechnya or Dagestan? They are indeed a part of Russia, but the Chechens (with a couple notable exceptions) are mostly enacting terrorist violence within Chechnya, not Volgograd or Moscow.
What, then, do we call that?