Upvote:8
Your rights in a situation like this are spelt out under European Law, in particular, EU261 (official legislation here)
Unfortunately in a situation like yours the legislation is not entirely clear on what the airline has to do.
Officially, for a cancelation like this that occurred more than 14 days in advance, then airline has to offer YOUR choice of :
Whilst this may appear that they need to offer you an equivalent flight at no additional charge (based on the 3rd condition), the phrase "subject to availability of seats" is generally interpreted (by the airlines, at least) as meaning seats available on that same airline. In this case, Etihad has stopped all flights between these two cities for those dates, so from their perspective there are no "available seats" for the dates you're after - leaving the only viable option a full refund.
It would certainly be worth contacting the airline again and specifically mentioning EU261 - and especially the third option above - however it's highly likely they will still not provide you seats on a different carrier at no charge.
As you were given more than 14 days notice of the cancellation, no compensation is due under the EU261 regulations.