I think it might be possible to cut a hole into the side of Iceland down near where it meets the seafloor, shunting magma onto the seafloor and removing the pressure that causes the eruption. Those Tsar Bombas might be handy for the operation.
That way, the eruption stops and most of the island would remain. It might have some problems due to the magma chambers collapsing when they drain, but we’d just need to evacuate the place for a while until things normalize.