Sammy, the short answer is that it made for the highest possible drama in that situation: the final transformation of Michael from "nice college boy" to Don-in-Waiting. It made credible his flight to Sicily and everything that happened afterward. Even though Michael was never formally "made" in the Mafia (his father wouldn't have stood for it), he "made his bones" in the shooting. That's how he got to be accepted as his father's successor.

The scenario you suggested was, as you know, used by Charlie Luciano to get rid of Joe (the Boss) Masseria in the Castellemmarese War. It worked for him, but it wouldn't have worked for the storyline of GF.