Mangels and Martin had nothing to do with it. Their first DS9 Relaunch story wasn't until Mission: Gamma - Cathedral, five books later. Jeffrey Lang and David Weddle -- himself a former staff writer for DS9 the TV series -- wrote that novel, and responsibility for that decision falls to them and to then-series editor Marco Palmieri.
Picard's defiance in INS was never all that much of an insurrection, because he was the one who was actually enforcing Federation law against a criminal (Dougherty).
What Federation law was he enforcing exactly? There is absolutely no evidence in the film that Dougherty was in violation of Federation law in any way in the relocation of the Ba'ku.
Forcibly relocating the entire population of a foreign state whose society pre-dates the Federation from their own planet? That's a textbook violation of the Prime Directive. Taking sides in their internal conflict (Son'a vs. Ba'ku)? Textbook violation of the Federation Charter's prohibition against interfering in the internal affairs of foreign societies (established in DS9's "
Inter Arma Enim Silent Leges").
1.
Section 31: Abyss seems to strongly imply that the Federation Council did not and that Dougherty was lying.
2. Even if the Council
did approve that operation, that only means that the Councillors who voted for that resolution are party to the crime. The Council doing something does not make it legal.
Eminent domain wouldn't apply. The Ba'ku are a foreign state on foreign territory that they had claimed
before the founding of the Federation. The Ba'ku world may have been surrounded by Federation-claimed space, but it cannot have been Federation territory any more than Romulus or Qo'noS could be.
Elected bodies are not above the law, and any such "special resolution" would themselves be unconstitutional (as they would inherently violate the prohibition against the Federation government interfering in the internal affairs of a foreign state -- and an affair doesn't get much more internal than you're going to live).
There is no evidence that this is the case, especially since the Briar Patch seen in ENT was established to be a lawless region claimed by no one in which Arik Soong hoped to hide.
So using that logic and your above statement about territory in space: The Federation and Starfleet had no stakes in this at all. Sooo... the S'ona should have been able to go in and evict/exterminate the Ba'ku on their own?
As a matter of fact: Shouldn't have Starfleet and the Federation recused itself completely from the situation immediately once they became aware that it was a Prime Directive issue? Isn't Picard guilty of violating the Prime Directive by interfering once he knows that this is a "blood feud"?
The Ba'ku had obviously asked for help; as such, Picard had every right to use force to prevent Federation forces from aiding the Son'a and to aid the Ba'ku, a helpless people desperate to keep their homeworld, repel an attempted invasion of their territory until such time as the larger Federation government
and populous could be alerted to Dougherty's criminal actions and a constitutional response formulated that is consistent with the Articles.
Of course, all this is moot because, as noted before,
Section 31: Abyss established that this was a Section 31 operation and thereby strongly implied that Dougherty was lying when he was claiming to be acting on the Council's orders.