Answers
How did they know, for certain, that they were terrorists or insurgents?
The USA had spotters on the ground.
Why would terrorists be casually walking down the middle of a main street, in a large group?
Because they were searching for US forces. They were not casual, but in a V formation.
Are they that dumb?
Not dumb at all. That is the way they operate, in platoons.
Couldn't they see, or hear, the aircraft above them?
No, the aircraft was probably miles above them in the air.