Jake could've killed him if he had used some of his Soul Power, but he had dumped almost all of it into the attack meant to obliterate Iaoth. Despite his bone-crushing offense just moments ago against Quilo and Sokal, he was completely drained, mustering every ounce of focus and willpower to keep from collapsing on his feet.
As for Iaoth's panicked retreat, it might seem pathetic to an outside observer, but their brief clash—with an obvious winner—actually masked a far more complex battle riddled with layers of nuance. One shouldn't forget that using magic, Spirit, or Soul Power in any form at this stage of the Ordeal was nearly impossible for 99% of the Players.
In that instant, Jake had resorted to the Fourth Form of his Original Spell 'Morphic Grasp,' called Liberation. The effect was as the name suggested.
