In th ebeginning, Michael is under the assumption that Fredo was not aware of the full extent of his treachery. Michael probably believes that Fredo, being somewhat stupid, was talked into doing something, perhaps with his intentions not being totally bad. I think that Fredo's little speech showed that he was not simply misled. He was bursting with jealousy and resentment. He was "stepped over", and during his rant, Michael sees how dangerours Fredo truly is. That is the moment that he knows that his brother must be eliminated.