Welcome to the boards Starchild.
I've never believd that Fredo knew. When he realized that Michael found out what he had done, while they were in Cuba, Fredo probably ran from Michael more out of embarressment than out of fear. Yes, Fredo was definitley afraid for his life, but I think that he was more ashamed for what he did.
After Michael tells him "Your nothing too me now," it probably crushed him to no end. But when Michael went and hugged him at his mother's funeral, it gave Fredo the idea that Mike was finally forgiving him and that now everything would be the way that it once was between the brothers. I really believe that Fredo loved Mike and looked up to him. I believe that Fredo really thought that by getting involved with Ola and Roth that he was finally doing something good for the family, and that if it worked out, Mike would finally be proud of him. There is no doubt in my mind that Fredo lived with the guilt of not doing anything when his father was shot, and he therefore spent the rest of his life looking for his brother's approval in everything that he attempted to do. Here was Fredo, involved in his father's business, part of the Corleone business, who could not do a thing about his own father being shot by their enemies. And along comes Michael, the "all american" younger brother, who was not involved in the family business, who never wanted to be involved in the family business, now taking full control of the family business and avenging his father's death. Stepping all over his older Brother Fredo ( "I was stepped all over"). Don't you think that this ran through Fredo's mind? Don't you think that Fredo lived with this feeling of being useless and living in Mike's shadow for the rest of his life? Deep down fully knowing that he ( Fredo ) was not ever and would never be capable of doing things like his "kid" brother Michael was able to do? And now, a deal that sounds good comes along, one that could help the family, one that will finally show my brother that I am capable of doing something for this family, one that will make him proud of me, doing something on my own! That's how deep Fredo's love for Michael was! Fredo really loved Mike and in his twisted way thought that he would be helping Mike. And once Mike made him believe that he was forgiven, Fredo would never think that the brother that he loved so much and looked up to would ever have him killed! . Poor Fredo.
As much as I love the Michael Corleone character and Al Pacino as an Actor, I despise him in two scenes, the first being when he hugs Fredo and gives Neri "the look" and the second being when he is looking out over the lake after having Connie call Anthony back to the house, fully knowing that Neri would be assasinating his own brother. Cold Bastard! Two times that Pacino make's the viewer despise Michael. That's what makes Pacino such a great actor!