Nice thinking, and rational ideas too.
Being more obsessed with historical correctness than game playability, my take is like this. Some territories were in fact blitzed through in one turn, and this could be large battles with millions of men, like the battle of Poland and France in 1940, and the attack on Russia in 1941. So to limit all combat to 3 rounds just to make contested territories, are a bad idea IMHO. Almost as bad as the 1914 game that only have one round of combat, making sure every territory will be contested. There are many reasons a territory got contested in the real war, and a magic Rulebook is none of them. A real war territory would usually get contested when both sides were out of supply or not strong enough to continue the attacks and break through the enemy line.
If the A&A map had terrain features like mountains, marshes, swamps, forest, winter and snow, I would give this territories one round of combat only, since its difficult to track supply here. And no supply, no dice rolling. The A&A game don’t have a supply rule, so we cant use that idea neither.
I think, that since the attacker got the initiative, the attacker should be able to choose between 3 options in Land combat.
After each round of combat, the Attacker choose to press
1. Continue attack
2. Stay and contest the territory. Of course no more dice rolling, lets assume both sides are out of ammo. Or if the Defender want to roll dice, let the Attacker roll his defense values.
3. Retreat.
4. A possible partial retreat, but this could be abused, you could retreat your tanks and let one inf stay, ruining the game mechanic and balance
In the A&A game, the Defender don’t get any choice of what to do. He is just a sitting duck. In a real battle, the Defender would get a lot of choices, and he should in this game too. First, he can retreat, and a successful retreat is counted as half a victory, since he deprive the Attacker a possible great victory, and force the Attacker to try again in a different place, at the cost of much time and resources. On the other hand, when a Defender retreat, he can not shot back, and this is why most of defenders retreats are very dangerous and end in slaughter and massacres. Another tactic is to delay the attacker with roadblocks and ambushes. This only works in forests and mountains, and not in the plain terrain that we must assume every territory on the A&A map is. For the counter attacks, I assume that is done in that players turn. You need time to build up a supply stack before you attack someone.
In A&A house rules, I suggest.
After each round of combat, the Defender choose to press
1. Continue defending
2. Accept a contested territory in case the Attacker pressed stay.
3. Commit his forces to a Defenders retreat in the next round. In this case, only the Attacker can roll dice in that round, and the surviving defending units retreat to an adjacent friendly territory. It will be like a sub submerging, it cant fire when submerging. You cant have a cake and eat it too. In this case, the Attacker is committed to attack since he pressed continue attack before the Defender choose to retreat. But this is fine since this is how it works in the real wars too. When a Defender retreats, he steal the initiative from the attacker, and this is why the successful retreat is half a victory. But it can ruin the A&A mechanic since the Defender now get a free move, when its not even his turn.
No matter what, this will take the game one step up the complexity ladder, and add pages to the FAQ. No more KISS