why did Walt and Jesse even think Tuco wanted to kill them?

Maybe because Tuco was so unpredictable. He was like a ticking time bomb. Tuco was a very scary dude! I sure as hell wouldn't want to mess with him.

I remember being confused by this as well. Were they scared that Tuco was going to kill them because they were "witnesses"? I mean they were there doing a meth deal with a known criminal so it should have been apparent to Tuco that it would be against their interest to talk to the cops about him murdering his henchman but somehow this incident is what started the complete breakdown of their business relationship.

I guess there was the moment right before they leave the scene where in the heat of the moment Tuco pins Jesse to the ground & says something vaguely threatening for some reason. But even with that it seems strange that they would become so convinced that Tuco wanted to kill them & didn't just need to calm down from his meth endused rage incident.

Over all though this did just seem like one of those contrived conflicts that honestly I think the writers had a bad habit of doing to quickly raise the stakes & move the plot along. I felt they were particularly bad with this during the Gus Fring arc & often times using Jesse's idiodtic emotional tantrums (that get worse and worse as the series progresses) to accomplish this.

He didn't think rationally because he was high all the time.

He beat one of his own mean to death for TALKING. He Put Jessie in the hospital. Of course that's reason enough.

They thought he killed the big guy Gonzo too because Hank sent that photo where they found the bodies. Then Walt saw on the news and realized when he saw the TV, Tuco is gonna think he and jesse told the feds about the junkyard because Gonzo is dead too. But really hank was tracking the car and found out about the bodies that way. And Tuco only knew about the guy he killed, not Gonzo. When they were at Tuco's place, they realized Tuco didn't know about Gonzo and tried to help shift the blame to him, that he told the feds. That's why they turned the channel when the story came on the news.

I

You're under the impression that Tuco is reasonable. He isn't. Heck he's not a even a cold hearted pragmatist in it for himself. He doesn't care about the bottom line. He's literally just an unpredictable animal who could snap at any time. Of course Tuco would say "fuck muh money you gotta die," at any time.