The Obama administration's decision to do nothing in that case is one of several extremely risk averse decisions that seemed questionable at the time and turned out to be quite bad in hindsight. Shrugging off Russia's invasion of Ukraine being another. It shouldn't have been a surprise that letting armed militias break federal law with little to no consequence would encourage further bad behavior.
Lol the Obama administration did not 'do nothing.'
They offered a plea agreement to the Hammonds (cause d'etre of the whole thing), who were then sentenced for a wildland fire under dubious circumstances.
After the sentencing it was a done deal, it was over. Then Obama's DOJ had to stoke the flames and reneg on it -- IIRC after the sentenced had already been served!
It shouldn't have been a surprise what unfolded after the government reneging, in a way that was so egregious that they (the people that were the cause d'etre for the Malheur occupation) were pardoned with the following remarks during the pardon:
"The evidence at trial regarding the Hammonds’ responsibility for the fire was conflicting, and the jury acquitted them on most (sic) of the charges." According to his spokesperson Sarah Sanders, who read the statement, "The previous administration, however, filed an overzealous appeal that resulted in the Hammonds being sentenced to five years in prison"
So you can see the Malheur occupation was a response to a federal government who engaged in such tyrannical behavior as inducing a plea bargain that gave up right to appeal, then themselves hypocritically appealing the sentence and changing it after the fact to one that was found to violate the 8th amendment by Judge Michael Hogan. The Malheur occupation was a response to this, if Obama had 'done nothing' in the case of the Hammonds or just respected the judge's sentence none of it would have happened. In my estimation Bundy et al was the only thing that brought the Hammonds the visibility to get the justice of a pardon under these circumstances and a restoration of their 8th amendment rights.
The hesitation was likely because something like a dozen of their own guys were in there (which they refused to identify at trial, so we only know the ID of one that was discovered), and the guy leading the live fire exercises, Fabio Minoggio, was a paid FBI informant (now cop) who was "psyops" trained 20 year veteran of the swiss military.
No real need to address the standoff, when the standoff is yourself vs yourself, and your own guy is by his own admission providing a "supervisory" role of the live fire.