Does Noodles naively ignore the reality about Max's betrayal?

Does Noodles naively ignore the reality about Max's betrayal?

No, Noodles does not ignore the reality, he just consciously chooses to ignore it. And in order to understand this choice one must remember how he got to the final confrontation with Max.

Upon receiving the letter that calls him back to New York after 35 years ("of going bed early" in the words of Noodles himself) of hiding and laying low, he's aware that someone from the past has finally found him.

He's suspicious about the reason (could be an old enemy) and he's still wondering who is the person that sent him the "invitation", although he's sure that is someone that knows him well. Throughout the movie Noodles starts finding clues that leads him, towards the end of the film, to her ex lover Deborah, which he found out to be the mistress of Senator Bailey, the man that has sent Noodles a mysterious invitation to his mansion for a party.

Deborah warns Noodles about going to the Senator's party and also about meeting his son, who's waiting for her outside the dressing room of the theatre where Noodles and Deborah are meeting:

DEBORAH - "We're both old. All we have left are a few memories. If you go to that party, you won't even have them any more. Tear up that invitation. [...] I'm begging you Noodles"

NOODLES - "Are you afraid I'll turn into a pillar of salt?"

DEBORAH - "If you go out that door, yes."

But Noodles is determined to find out the truth after all this time:

DEBORAH - "This is the son of Senator Bailey. His name is David. The same as yours"

and so he finds himself in front of his young friend Max, as if 35 years didn't pass. Although it is not revealed out loud in the movie, it is perfectly plausible to imagine that Noodles has finally understood who is waiting for him at the party and who this Senator Bailey actually is. He could tear up the invitation, as Deborah suggested, but after all he's learned he can't go back to his life without a final encounter with his old friend.

At the party Senator Bailey doesn't waste much time dwelling on the past with Noodles and, since he will be dead anyway in a matter of days, he goes straight to the point and tries to manipulate Noodles into killing him by urging Noodles to exact his revenge and reminding him that:

MAX - "I ruined your life, Noodles. For forty years, I've let you think you got me killed. Your eyes were too full of tears to see it wasn't me lying burned up on the street. [...] I took your whole life away from you; I've been living in your place. I took everything - your money, your girl... What are you waiting for?"

But Noodles has a much simpler version of the story:

NOODLES - "Many years ago I tried to save a friend of mine by turning him in. He was a very close friend. Things worked out bad for him and for me."

and he sticks to it. To deny what has happened, what he believed for 35 years has happened, it would also mean for him to acknowledge that all the grief and the remorse for causing the death of his friends (Max, Patsy and Cockeye) has been wasted. That all his life has been wasted. That the friendship in which he believied in up to this moment probably never existed.

Noodles walks away from Senator Bailey not because that's his way of taking revenge against him but because he believes that Max, his friend Max, died 35 years ago. This crooked politician standing in front of him is no one for Noodles and he has no grudge, no debt to exact from him.

The story is beautiful and touching despite how sad it truly is. I believe Noodles chooses to ignore the betrayal as he values the memories and friendship with Max. Noodles does not shelter himself from what was done yet he is loyal at heart. Max however looks out for himself more than he looks out for anyone else, including Noodles. The dynamic is possibly a story of Noodles choosing to love his friend. Max lived in the future while Noodles lived in the past holding on to his memories. In the end Max was not happier or more satisfied with his choice.

In some strange way this resembles Gatsby in the sense where they are searching and seeking the future whilst living in the past. There is no doubt that Max and Noodles meet a tragic end even if at very least it costs their friendship which is really all they had in the beginning. Lastly, their friendship ends where it began. As most Sicilian fables this is no different. They usually end where they left off but with a different ending if that makes sense.

No, he deals with the painful facts by recalling how much he loved Max. His tears show how much he cherishes those memories, remembering when they jumped and embraced before hitting the water.

What an act of greedy betrayal! How could someone do such a treacherous, unthinkable thing to someone who loves them -an unforgivable act. The outrage Noodles must have felt -but no murderous rage, only tears.

Max, his beloved friend died and he could always reminisce about those wonderful moments in time, and this monster Bailey could not destroy those joyful memories. The monster, Bailey was some fellow that Noodles did not know.

Noodles left a betrayed man harmed and cheated, but with peace in his heart, knowing that he could never do such a thing that was done to him.

Coming to a realization of what he had done, the gravity of it being too much for him to bear, Bailey threw himself into the garbage truck grinder, a cowardly act. Noodles realized it, feeling amazed, astounded but he was unmoved to see this monster die -but he felt no malice in his heart. He was a free man with no grudge in his heart.