My experience as a military officer and just a situationally aware man says fights usually involve two parties and when you don't know what's going on, your priority is to worry about assessing, disarming and separating, not arresting.
This officer assumed the blue shirt guy was the only threat and paid no attention to the actual terrorist.
It also says that when someone has just heroically interrupted a terrorist attack and you've almost gotten yourself killed by misidentifying him as the attacker, you apologize and thank him, you don't arrest him.
I've seen many cases of American LEOs doing just that, there's no reason the Germans can't do the same other than ideological blinders (aversion to self-defense, excessive emphasis on imagined threats (white supremacy) versus actual threats (radical islam))
If the officer had been alone to do everything, understandable. But there were multiple officers on scene.