That describes the Council in the Donner version. In this version, they knew, and simply chose not to act. There was no real reason given for this foolishness.
There was, actually: they were in denial about thinking they would find a solution to the problem that wouldn't involve upsetting their lifestyle or worldview. It's an analogy to the mindset of, say, present-day climate change denialists. And quite an effective one, too.
You do have a point about the line: "There's only one way this ends, Kal! Either you die - or I do." Zod, dude, that's... that's two ways. (Nevertheless MoS' bad-guy Kryptonians, and its plotting, were an advance light-years beyond their predecessors in film, as much as I still love hearing Terence Stamp say "Kneel before Zod!")