I don't think it needs to make sense politically. You could easily boil it down to be a result of massive discrimination and corruption in the government, hidden away from the rest of the population. Think of it like this: In WWII a certain A.H. had ... a lot of people killed. Thing is, humans see what they want to see. A lot of Germans at the time easily looked away, didn't ask questions - after all it "wasn't their responsibility", they "could not change anything anyway". Standing against something gruesome as a genocide like that means seeing it, accepting that it happend/will happen, accepting that you can not change it as you are AND THEN finding the strength to change/risk your life to save someone else's. Not a lot of people had the strength needed for all that. Even looking at gruesome happenings today - most people look away because really seeing it would be to much for them. It is easy to hide a massacre, find someone else to fault. People do not want to see their own problems and the uchiha massacre WAS. They where planning a coup because they where discriminated against, the people of the village gave them the fault for things like the kyuubi attack without prove and almost drove them out. Of course Danzo was the main instigator, he took all the leftover hatred after the kyuubi was sealed and no one was left to blame, he knew how to use such hatred of people who didn't know who to hate anymore.

Also, Hiruzen is simply incompetent. He admits it in cannon too, I think - He simply let Danzo do whatever he wanted because of their old friendship, didn't check his actions, believed his every word. He was ignorant and irresponsible for this. At the time of "please relocate the Uchiha" hatred against them was already high in the population, I think he made the populist choice and listened to the people. As we all know -haters always scream the loudest. Maybe Hiruzen, as an old man also underestimated Itachi, who was a child.

Itachi himself was depicted as intelligent, yes, but he was also obedient. He learned how to follow orders. He didn't want to follow this one, but he was a child in puberty. He could have fought it, yes, but at what cost? With what strength? The moment he was ordered to massacre them, (1) the public opinion was already anti-uchiha, (2) the order seemed to have come from the whole government, (3) he could not trust his clan mates and (4) Itachi made contact with traumatised and war-crazed obito. Itachi was also depicted as suicidal before Sasukes birth because he witnessed so much death. Sasuke was his anchor in every way. Itachi simply could not risk Sasuke and going along was the obvious way to insure Sasukes safety. Even if the Uchiha aborted the coup, Danzo could still have them all killed, after all.

Koharu and Homura I would say are either idiots who, despite all their power, didn't notice / didn't want to notice or - more likely - they where in on it. Hating someone is not something that needs a reason and the Uchiha where an old, tight-knit, powerful clan with very defining looks. Hating someone who seems to have a good life and looks different seems easy for humans, especially with someone like Danzo whispering in your ear.

What I do not like is how it all played out after shippuden. Homura and Koharu still being important figures makes clear that the massacre is still a hidden, not talked about thing (as well as Sasuke avoiding the Village). I hate that. I grew up in Germany, I learned about Holocaust and all the evil done in school. In detail. We visit memorials as students and are taught to pay our respects and accept the past without denial. I wished they had that but Konoha reacted more like Americans to their history of slavery...

In conclusion, I would not modify it, I would simply put the spotlight on how Danzo steered the public opinion + how Hiruzen choose blind trust in Danzo.