Mike understood Italian fine, he wasnt ignoring Sollozzo, he was listening to him. The line right before Michael starts speaking English in that scene (ask Angie to spell it for you) Mike says- "How do you say...." He knew the language, but he could better express himself in English, the exact opposite of Sollozzo. Thats why Fabrizzio translates in Italy, for something as important as that, Mike didnt trust himself to properly express his motives in Italian.