It was a smart move because for all intents and purposes, the Corleones would have lost a straight-up war. Realistically they only won because Michael orchestrated assassination attempts (on everyone in the movie, on Barzini and Tattaglia in the novel).

He wasn't being sarcastic; Tessio figured that Michael couldn't have beaten the other families and if something had gone wrong with the assassinations, he would have been right. Also keep in mind that aside from Michael's "inner council", nobody even knew those assassinations were coming. Tessio certainly didn't, so to anyone who didn't know what Michael had planned, Tessio's decision WAS the smarter choice.