I guess that's my question, did he really call off the dogs?

If he did, then I can see chalking things up to timing and what not. The intention in that case would be to let Michael live - and do business with a pacified, weakened Don Corleone - but with the Corleone political web still fully intact and cooperating.

If he didn't call off the dogs, wouldn't he have to finish the job and crush the Corleones in their entirety so he could move forward and pick up the crumbled pieces of their Empire? Strategically at that point, why would the plan be to take out Michael, leave the Don, Fredo, Tom Hagen, and the two caporegimes in place, and then just slowly nibble around the edges for ten years? I guess that's where I get confused.. Taking Michael out and leaving everything else in place (including Fredo as an heir) seems odd. Particularly given Michael's minimal involvement in family matters up to that point and the Don's extra stern warning.