No way he knew. The theory that he knew and just accepted his impending death is inconsistant with what we know of Fredo and lacking in evidence.

What do we know about Fredo? First and foremost we know that he isn't that smart. We know this for many reasons. It was the analysis given to him by many characters, including the Michael himself. We know this because Fredo was fooled into contributing into a plot that required the death of his brother. We know this because he gave himself up by making the contradictory statements about Jonny ola.

By his actions we know that he is a gullible person, and far too trusting.

Next, we know that Fredo is a coward. He did nothing to stop the shooting of his father that took place in front of his very eyes. He ran from Michael in fear after being discovered in Havanna. He let Moe Green walk all over him and slap him around in Vegas.

Finally, we know that Fredo is not a very good actor; he wears his emotions on his sleeve. Case and point in my opinion is when Michael "introduces" Fredo to Jonny Ola. Fredo goes from talkative and jovial to nervous and offstandish for the few seconds he "meets" Ola and shakes his hand. If he wasn't Michael's brother and therefore above all suspicion (at that time) I believe Michael would have caught on right then.

What do these three character traits mean? His gullibility allowed Fredo to believe that he had acheived full forgiveness by his brother Michael. You can't really fault him for this, why would he not believe his brother? Michael stopped talking to him and then comes in and hugs them on the day of their mother's death? If you watch the hug that Fredo gives Michael, it is not a hug that has any reservations about the magnitude of the moment, it's the hug of a man experiencing a heavy load being lifted off of his shoulders.

Next, his cowardice. Fredo is simply not the kind of man who would acknowledge and accept his death and sit around the compound waiting for Michael to drop the hammer. He just simply couldn't do it, it'd be completely contradictory to his character. This also ties in to my third point, Fredo not being a good actor. He could not live a relaxed life, going fishing with his nephew, with the knowledge that he was going to get popped at any moment.

The Hail Mary was an added touch put into the film to make his death more artistic. There's no way Fredo would sit there knowing Al was about to put a gun to his head. When you go fishing in a canoe, that's how you sit.

Finally, I think there's one more point that hasn't been considered: NOBODY would think Michael capable of killing his own brother. Even Connie in III, a woman who becomes very close with Michael and just as if not more ruthless than he is, doesn't even consider the possibility that Fredo was not killed in a drowning accident. You have to keep in mind how important family was to everyone including Michael, and the idea that Michael would kill his own brother for revenge could not be fathomed by anyone, LEAST of all Fredo himself.

I'm sorry if I've dragged on. Let me know what you think.