You'd have to ask the French Prime Minister that. The French wanted to storm the aircraft immediately, but the Algerian government wouldn't let them into the country. Then the French encouraged the Algerian government to let the plane take off, so it would come into French territory, where the French could resolve it. On the night of December 24th France deployed its GIGN to Majorca, Spain - as close as they could get without looking to be interfering - on an identical airline, allowing the operatives to familiarise themselves with the aircraft in preparation for an assault. All of this happened before there were any rumours of a suicide attack.
The French Government didn't realistically consider the firebomb plot until after the flight had landed on the 26th, when the hijackers asked for a full fuel load. It was another couple of hours after that, that the French Government first heard of the supposed firebomb plot. They had already made a decision to storm the aircraft on the 24th.
The hijackers let 63 passengers leave, and would have let more go, but many of the Algerian passengers refused to get off the plane. In the very programme you provided (The Killing Machine) the survivors talk of Yahia's reluctance to kill a fourth hostage, and his continued delaying of the execution - instead choosing to fire randomly outside the aircraft and at the control tower.