They are in a rebellion/civil war and recently experienced a ramped up offensive from Ukraine. And the Ukraine had closed its airspace to civilian traffic over the war zone.
Ban introduced on civil flights over zone of military operation in eastern Ukraine
They assumed it was a military plane. All information available points to that.
Reagan had a strong hand to play. The Russians knew it was civilian because they tracked it over their air space for quite awhile. Reagan played a strong hand correctly.
The Ukrainian no-fly zone was to the south of the Donbas region. Reportedly, MH17 specifically requested permission to fly north of it and were duly approved, after having already over-flown ~700 miles of Ukrainian territory.
BTW, it's "Ukraine", not "the Ukraine". It's a country, not a region of the USSR.
They assumed it was a military plane. All information available points to that.
Absolutely. They assumed. But there is no excuse for assuming unless your life is in imminent danger, which theirs was not.