One of the major themes of "The Godfather 2" is Michael's transition from a kind man to a hardened, business-like criminal. Therefore, his treatment of Fredo by this time is "strictly business". Fredo has to be considered a threat to the Corleones after his betrayal, which is why Michael has him killed.
If you are still unconvinced, remember that this kind of behavior is not new to Michael; in "The Godfather," he kills Connie Corleone's husband after he betrays Michael to Don Barzini, even after he apparently forgives him.
EDIT: See the comments below. They make good points, though I'm pretty sure the Carlo is very much a part of the family and both Fredo and Carlo betrayed the family in a similar way.