The way our brains work, the cop thought the suspect still had the gun. He saw the suspect draw the pistol, but the "toss" occurred behind the suspect's back, where the officer could not see it. In his mind, the suspect still had the gun. Magicians use this "feature" of our brain to fool us with sleight of hand. I suspect the suspect was also trying to fool the cop by tossing the gun behind the fence.
In a split second, this is a very difficult shoot/don't shoot decision. I suspect most people would have shot.
Yup. Judging by the cops natural instinct to sidestep away when the suspect turned, he definably thought he could have got shot, too. That alone clears the cop from wrongdoing after knowing the delinquent was armed. See #230