Actually, they can do nothing to stop online betting. It's like piracy, there can be laws forbidding and punishing the practice, but most people will still go for it, doesn't matter what regulators say. And in fact, who should choose what kind of gambling is better (virtual or physical) are the customers, so casinos' owners (including the tribes) adapt themselves to what customers are demanding. It never works on the contrary in business and service provider to customer's relationship.
The government can do something, like tracing these illegal activities and shut them down. Though I believe the government cannot stop these kinds of illegal activities at least they can trim them down and punish a few. That may also give examples to those who plan to create illegal online betting and will possibly slow down the growth of it.
I'm sure they are all going to work together on the solution which provides online gambling and sports betting to the community. After all, it's the only alternative anyway.
Well, I agree that the government instead of totally banning gambling must think of regulating the online gambling industry instead. This way they can get profit from the activity and at the same time reduce their budget for tracking people who do illegal bets.
Maybe in the past it was possible for online casinos to grow without having license or legalized by the government but nowadays it's not possible almost all the reputed casinos have licence and if new members are looking for a new casino they always check for the licence and feedback from the existing users so if a new casino want to grow and survie along the huge competition then they need to tick all the boxes.
I think the earlier years of online casino does not need much regulation but as it becomes popular and problem about money laundering being attached to online gambling then the government or authority decided to implement regulations and KYC to prevent illegal activities online.