Its ok, these things happen and its just a paper. I'm not really upset about it that much and will turn it over somewhere else.
Hey! Not so fast with the resignation! One thing I have learned over the years is to never take a paper "rejection" as a rejection until an editor tells you personally--not using automated boilerplate language--that she absolutely refuses to reconsider the paper.
We have a paper in press right now at a moderately high-impact journal that was originally "rejected without opportunity for revision". I e-mailed the editor and said, "These reviews don't look so bad. What's the real deal, motherfucker?"
The editor responded that the reviewers felt it was not a complete story, but if we could do x, y, and z, we could appeal the rejection. We did x, y, and z, appealed the rejection, and were invited to resubmit. (The fucking journal did, however, nail us for a second submission fee, the bastards!)
After peer review of the resubmission, we were were asked to do minor revisions subject only to editorial re-review, and now we are in press!
In DrDrA's case, the issue seems to be more one of the reviewers combining a partial misunderstanding of the importance of the work with a partial misunderstanding of what scope of work would be reasonable to expect in a single publication.
In a situation like this, it can't hurt to politely and graciously explain how, in one's humble opinion, the reviewers made mistakes in the review, and ask the editor if, in light of these arguments, she would reconsider at least re-reviewing a revised version. The worst case scenario is that the editor still says no, but even then you are likely to learn more about the basis for the rejection.
Another benefit is that, again even if the editor refuses to reconsider, you have the opportunity to demonstrate to a journal editor that you are a cogent, gracious, reasonable author, and establish a bit of a personal relationship with the editor. And needless to say, every single little opportunity to make a connection with a person who has some power over your career--no matter how evanescent--must absolutely be taken advantage of.
One last point: When you aproach an editor via e-mail to feel out whether a rejected paper might somehow be reconsidered for revision, you need to balance brevity with substance. You don't want to just make a naked plea for mercy, with no substantive reason at all given for thinking that reconsideration is merited. (In our case, this was the fact that the reviews "didn't look so bad".)
But you also don't want to provide a three page point-by-point rebuttal until you are invited to do so. This just makes you look like a wackaloon crackpot, will send the editor running the other way, and will not garner you any "cogent, gracious, reasonable author" brownie points that could be cashed in on some future submission.