Well, that was what, 13-14 years before the events of GF II?

A lot more water had gone under the bridge since then.

Obviously Vito thought Fredo was at least minimally competent at the time of the Solozzo meeting, competent enough to let him serve as "bodyguard" (even if only briefly) during the absence of Paulie, thus entrusting his life to him (and almost getting killed as a result).

When Vito is lying on the curb, critically wounded, what does Fredo do? Sit down on the curb and collapse into tears.

From that moment on, Vito knew Fredo could never be trusted to handle anything really significant.

What finally tore it for Michael was Fredo's outburst in the boathouse ("I was passed over," etc etc), but worse than that, he also feeds Michael a line of BS about the Senate committee and Questadt (which Michael KNOWS is BS), at that point Michael decides Fredo is still trying to snow him, and he has to go.

Maybe, if Fredo had come to Michael completely contrite, apologized for what he did wrong, and NOT fed him bullcrap information, Michael might have decided Fredo could be allowed to live, as long as he was stashed somewhere he couldn't cause trouble.

But even after Fredo knows Michael has found him out, he knows all about the deal with Ola and Roth, he still tries to snow him, he isn't going to change his tune. Fredo signed his own death warrant with his "I was passed over!!" temper tantrum.