...by which I include both the US and Europe, chose the worst course of action: indifference.
To properly sanction it would have kept it weaker. If not for Communism or even Afghanistan (where the rise of the Taliban is related to meddling by both great powers), at least for Chechnya, Transdnistria and the breakaway parts of Georgia, all of which depended on Russian support after the fall of the USSR.
Or otherwise it could have properly focused on making it transition as it was for most of the former Communist countries. The poorest part of Yugoslavia, Kosovo, is well on track to EU and NATO membership and if it doesn't join it will be because of a Spanish veto, not because of Russia or Serbia. Russia may not be invited into NATO (something which was seriously talked about in the early 1990s) but it could at least have been more Westernized. Russia's project of the CIS was supposed to become an Eastern EU, and it could have become one.
The sad reality is that American Russophobia never really went away and now Europe is paying the price of 30 years of American indifference.
And East Asian allies may pay the price too soon, regarding PR China. China is watching the inability of the West to act swiftly and forcefully in their own continent and is already flexing its muscles. Japan, South Korea and Taiwan are too small. The Austronesians too dependent on the West. Australia too far. And India is too dense and faraway from the core of China, and surrounded by Pakistan to her other side. Russia's core is much closer to the West.
Germany was overly sanctioned but also not given a way out to recover. Not only that, but the conditions were created for the mainstream political class to be blamed for everything. In the end it was the NSDAP who prevailed; but it could easily have been the KPD instead, and the experiment would have been just as brief. Rather than persecuting Jews, they would have persecuted the middle and bourgeois classes, already harmed by the sanctions and the hyperinflation cycles.
Finally I think that Putinism basically took many people by surprise. Yeltsin was a kleptocrat, but his foreign policy was not really aggressive: the proof is in his scant reaction to NATO / EU intervention in its Serbian close ally; his acquiescence in Afganistan (Putin on the other hand originally welcomed Western bases in Central Asia); and his abandonment of Cuba and Cuba friendly Latin countries (21st Century Socialism, Latin style, now prevalent in most of the continent, pretty much depended to grow on an aggressive China and an overtly anti Western Russia, which were not there in the 1990s).