I have three theories as to why this was allowed to happen
1. Societal cynicism. The Mayor is aware that he's locked people up for a few months now and decided to allow this to continue as a sort of societal pressure release valve. Theory is, if they let all their anger out all at once, the problems should be less as time goes on.
2. Fear. The Mayor didn't want to be seen as a racist cracking down on police. He knows that the voting bloc is either out there burning shit, protesting, or watching this all. So instead of giving more fuel to the fire, he tells the cops to back off, less death, more time in office for him.
3. Giving the jackboots ammo. How many people after today living in Minneapolis aren't at least a bit worried after all this happened. You think they won't want some more cops on the streets, more importantly, the richer, nicer suburbs? How about a few laws to make things safer? I mean did you see those riots? Imagine something like that in your neighborhood!