What is the ruling on wetting papers that contain verses or a surah from the Qur’an with water, instead of burning or burying them? Is it permissible to underline or circle words from the Qur’an with a pencil if one makes a mistake or hesitates over them?

It is permissible to wash worn-out pages of the Qur'an with water until the letters are completely removed, or to burn them, or to bury them in a pure place. Al-Suyuti mentioned that burning the Mushaf is better than washing it, because the wash-water might fall on the ground. As for underlining some words in the Mushaf with a pencil to correct recitation, there is no harm in that.