An interesting premise Mustachepete.

After the killing of Khartoum, Puzo wrote something like "Woltz was not a stupid man, but he was extremely egotistical." I think Woltz was one of those guys who liked to push people around and whose bark was worse than his bite. His mistake was a theme repeated throughout the novel and the first two films - he underestimated Vito. We see other characters underestimate one another throughout the first and GFII films.

If Woltz would have fought back after the death of Khartoum, he would be dead. It would have been a hit like the real one on Jimmy Hoffa - Woltz's body would have never been discovered. Vito would have had him killed and in a way which could not be traced back to the Corleone family. His friendship with J. Edgar Hoover would have been moot. And my guess is that he overstated his the relationship with Hoover to Hagen - just another intimidation tactic.