I don't think you're wrong to question details of the Uchiha Massacre as iffy. In the first place, it's retold so many times and details change, with some versions making more sense than others. To name a few: the Kakashi: Shadow of the Anbu Black Ops arc, the Itachi light novels, the anime adaptation of the Itachi light novels, etc (and for an example of inconsistency, Itachi killed his "lover" Izumi Uchiha in the light novels, but Tobi killed her in the anime adaptation).
I believe I can answer this particular query regarding why Itachi has to kill everyone, but first, here are some of the problems I found with the Uchiha Massacre which you may also enjoy mulling over.
- Itachi's parents saying they're proud of him as he kills them. His father says something like, "You may have chosen a different path, but you're sure of your convictions, so I'm proud of you."
This is gross. I can believe his father not wanting to fight him, but this goes way too far, and it just beggars belief because I don't believe anyone would react this way to their child massacring their own clan (but particularly as Fugaku likely treasures his clan greatly).
- Itachi being regarded as a hero for protecting the village.
After the truth comes out, the narrative really tries to sell us on Itachi being a hero. It's repeated again and again. But as you've already noted, Itachi killed non-combatants. He perpetrated an atrocity.
- Why doesn't the Third Hokage just meet with Fugaku to try and calm things down?
Though I have done my best to justify this point in this question and answer, it still remains a question we should ask.
To Answer the Question
So the question: Why Itachi had to kill everyone instead of just the combatants.
I will be referencing my answer here, and I will be using the events in the light novels because I think this version of events makes the most sense.
The first thing we should know is that Itachi is not the only actor in play here. The main players we have to consider are Danzo and Tobi. Especially Danzo though.
The light novels make it very clear that for years Danzo has been salivating at the thought of having an Uchiha wipe out their own clan, and that he's been working to make it happen. After the Nine-Tails attacks the village, he works in the shadows to spread rumors that the Uchiha were to blame, which further increases resentment towards them. And he is responsible for relocating them to the edge of the village and he just generally makes the Uchiha feel like the village doesn't trust them. And in Itachi, Danzo sees just the ninja who can bring his long held dream of wiping out the Uchiha to fruition, and he does everything in his power to maneuver Itachi into a position where he has no choice but to kill all the Uchiha to save the village.
As a sidenote, Tobi has also been instigating unrest, by meeting with Yashiro Uchiha and his group of hotblooded youth and riling them up.
Now, onto why Itachi has to kill everyone, not just the combatants. It comes back to a couple of things. First off, the village wiping out the Uchiha would cause major unrest amongst the other clans, as they would wonder if they were next. That's why Danzo wants Itachi to be the one to wipe out the Uchiha. That way it'll look like a lone Uchiha went crazy and that it had nothing to do with the village. So what happens if Itachi starts sparing people and only attacks combatants? It looks like he's not crazy, but rather that the whole thing was a tactical military operation. That's pretty undesirable. Plus, what Danzo really wants is for the whole clan to be wiped out. In order for things to work out, Itachi has to become the villain, and that means he has to act out the part by perpetrating something truly atrocious.
Still, we might wonder why Itachi agrees to this. And that comes down to several factors. First of all, he agrees that there's no other way to stop the coup except by killing the Uchiha. He also realizes that if the Uchiha attack the village, they'll be wiped out anyway, plus they'll take down the whole village with them since it'll be softened up for outside forces. He rationalizes in this manner by saying the Uchiha are done for anyway, so he needs to save the village.
But importantly, there's also the matter of using Sasuke as a bargaining chip. In order to protect Sasuke, Itachi makes an agreement with Danzo and the Third Hokage that Sasuke alone will be spared and that he'll be protected afterwards. With all the Uchiha being marked for execution for their coup, the whole situation puts Itachi at a disadvantage, and that means in order to protect Sasuke, he has to give up on everyone else and do what Danzo wants.
That's the answer. But additionally, there is actual evidence that Itachi despised his clan. We see it in his thoughts when he gets mad at the Uchiha for having no foresight and for coming up with such a stupid coup plan; we also also see it when he throws shuriken at the Uchiha symbol after he's accused of killing Shisui. In that moment, he was fully prepared to fight his accusers, and only stopped because Sasuke showed up. We also see his hate when he deliberately gives Yashiro Uchiha (one of the primary instigators) a painful death.
I don't mean to say Itachi killed everyone because he hated them, but I do believe this internalized hate goes a long way in explaining how Itachi could bring himself to kill all the Uchiha.
Additional Info
The light novels also explains why it wouldn't be effective to just take out the leader of the coup (Fugaku), because that's exactly what Shisui tries to do, but Danzo says it wouldn't work. And that's because the unrest and the coup extends beyond just him. There are a group of hot-headed young hardliners who want the coup to happen (led by Yashiro Uchiha). The whole situation goes far beyond just one person, and manipulating Fugaku (who is actually kind of a moderate, if you can believe it) to keep them in line won't work indefinitely.
