Censorship is not primarily about technology. Human beings are much smarter than computers, and they inevitably find ways to circumvent filters to get the content they want. Rather, the basis of effective censorship in China, like all government power, is the ability to punish people in "real life" when they do something online the government doesn't like.
The Chinese government knows that the "Great Firewall of China" won't stop all attempts to access disfavored foreign Web sites. That is not its goal. The government simply seeks to make disfavored foreign Web sites inconvenient enough that most Chinese users will switch to homegrown alternatives that are under the government's thumb. This allows the government to focus its human resources on the small minority of people who persist in circumventing the Great Firewall.
Google can do a lot of good by investing in improved circumvention technologies. A worldwide network of proxy servers helped dissidents in Iran communicate with the outside world in the weeks after last year's disputed election. Google could certainly invest in the creation of a more extensive, robust, and user-friendly network of proxy servers.
Google can also help by embedding privacy-preserving and censorship- circumventing technologies more deeply into its existing products. Its recent decision to encrypt GMail access by default is a good example. Google might consider bundling circumvention software like Tor with its "Google Pack" of desktop software. The more ubiquitous such software becomes, the harder it will be for the Chinese government to distinguish innocuous uses of the technology from subversive ones.
Still, there will never be a purely technological solution to censorship because censorship is not primarily a technological project. No software can protect a Chinese citizen from the knock on his door when he's caught using circumvention software. Nor can any software allow him to publish criticisms of the government without fear of reprisal.
Ultimately, defeating censorship is something that only the Chinese people themselves can accomplish by toppling their repressive regime. There is little that Google, or any American company, can do to directly shape the evolution of China's political system. But Google's withdrawal from China has important symbolic value. Google has become one of the world's most prestigious brands, and for the last four years it has lent undeserved legitimacy to the government's censorship efforts.