How do I do this other than forwarding instead of replying? Can I set a setting in the 'Mail' preference panel?

I'm using a Mac, not an iPad, but in Mac Mail you go to the Edit menu and select Attachments. The option that you want is there.

When all else failed I even resorted to reading the iPad User's manual and although there is a good bit of information on how to deal with Mail attachments, nowhere did I find how to include an attachment in a reply in either iOS 8 or 9. When you are forwarding an email that has an attachment there is a popup that offers the option to include or Don't include attachments from the original message, but no similar option on Reply.

I did however come up with a couple of solutions that might work.

1. I copied the attachment using the standard iOS copy function, then replied to the original email and pasted the attachment to the reply. A bit clumsy, but it worked.
2. For several months now I have been using a third party email app on Yosemite, El Capitan, iOS 8, and iOS 9 (the iOS versions are available in beta only) and in the iOS versions the attachment is included with the reply message.

{FWIW I tried Airmail at a time when I was having problems with a Google Mail account and grew to like it enough that I almost never use Mail any more. It lacks some of the scripting (Rules) in Mail but offers far more configuration options including the ability to Map mailboxes to suit the user's own work style. IMHO it is well worth a look if you are wanting an alternative to Mail that runs on both OS X and iOS platforms.}