Killing Fredo. It was what seemed to haunt Michael the most in his later years...therefore it was his worst decision. Michael may have been a business man, but his heart had always been set on putting his family first. That was the Corleone way. He made a lot of other business-related mistakes too, I admit, but family was most important to him. It was what he lived for. For the entire trilogy, he is trying to balance what he had to do (take over as Don) and what he had to protect and keep (his family). Killing his own blood was one of the ways he failed in doing the latter, IMO.