It's hard to believe I'm 41 years old, count myself as a Bob Dylan fan, and have never heard this song. Watch Mr. Dylan on David Letterman. It's mesmerizing.
So, what does it mean?
Here's my interpretation: At its base, License to Kill is describing the consequences of a Godless society. Without God, who will take away man's license to kill? We've killed God and now man "only believes his eyes." Without a world beyond ours, we live in an echo chamber of our own creation and it's making us "ill."
The consequences have left us isolated and on the brink of destruction. "The first step was touching the moon" evokes reaching for the stars (and not heaven) as well as the space race and arms race. The "license to kill" could also reflect the president's license to "push the button," but I think that's too narrow an interpretation.
The imagery creates a feeling in the reader that can work on many levels. The lines
Now he worships at an altar
Of a stagnant pool
And when he sees his reflection, he's fulfilled
evokes the theory of evolution, man in the image of man rather than God. The pool is also stagnant, lifeless. He's looking into the abyss and seeing no life, only his narcissistic self. The stagnant pool where he sees his reflection could even evokes the reflecting pool in Washington D.C. I think Dylan often picks an image that evokes feeling in the readers that he wants. He's not trying to send a precise coded message. This isn't a puzzle. He's trying to get you to "feel" what he saying rather than think it.
The woman appears to be a device external to "man," looking to God ("facin' the hill") or whatever has replaced Him. She could be the man's mother, watching her son raised without God -- "groom him for life and set him on a path where he's bound to get ill" -- eventually seeing him killed by the war-filled society -- "buried in stars." Stars also evokes the space theme. He doesn't go to heaven, but he's buried in stars (cold and lifeless).
She's left in the cold in the current world. Again, the language "cold chill" and "night grows still" ties in with the cold, dead vacuum of space man has created with "touching the moon."
It's remarkably well crafted.