I agree that Fredo was duped. However, Michael realized after the boathouse seen that Fredo was a ch*nk in the Family's armor. To allow him to live, he would have left the Family, and subsequently his family, vulnerable to another attack. Remember, although Michael forgave Fredo, how much longer until that resentment built up again? Oh, sure, let Fredo take Anthony fishing. Oh, sure, make Fredo stay at the compound all the time. Oh, sure, even Connie is making decisions, while Fredo becomes the babysitter!

Fredo's guilt is apparent in the Havana scene. He questions why he and Michael never had more of those talks, spent more time together. Obviously, he is thinking that his brother's love is apparent to him for the first time (You're no gypsy, Fredo) and thinking to himself, Ah! If I had only known!