The space station can hold five people safely (three permanent and two visitors - usually engineers but twice there have been space tourists). Two of the shuttle crew could've transferred to the station and waited there for up to two months. The other five would return to earth on the second shuttle (which only needs two crew to fly it). The damaged shuttle would then be abandoned on the ISS until it could be recovered or else discarded into space.

HOTOL is probably the best option for a replacement shuttle. But it's British so the Yanks won't like it (and, at this stage it's a bit dated - like the shuttle).

Food for thought: In one mission the Space shuttle travels further and endures more stress than a Boeing 747 does in twenty years of service - including refits.