Heller was being pragmatic
Having worked for the US Government, he knew that there were certain lines you didn't cross. The government would be willing to go down the legal route to extradite and prosecute Sanchez because while his crimes were serious, they weren't a direct threat to National Security. However, the moment he shot down an American airliner with a Stinger missile, he would've gone from being a Drug Lord to an International Terrorist. Anyone directly associated with him would soon find themselves a target for US retaliation.In fact, we see that Sanchez has control of the military in the country he resides in (and basically owns the entire country), meaning that his action could be seen as an Act of War.
The multiple Bonds theory is in play here over the course of a single film
The multiple Bonds theory is that 007 is just a designation that is used for the top agent. When Bond disobeyed orders at Key West. They shot him. Then another Bond came to finish the job but with more plausible deniability. That would explain why Milton Krest or Dario didn't ID him. M wanted Bond to go rogue.
M ordering Bond to not go after Sanchez in such a public and insecure place, as well as how quickly he folded the pursuit and search for Bond, as well as the way Q and Moneypenny were able to mobilise covert support for Bond, all sorta imply that M was not exactly unhappy about what Bond was doing, he just wanted Plausible Deniability in the affair. Especially since he apparently was happy to reinstate him at the end of the movie. Britain took care of a rogue element in Latin America, presumably to the satisfaction and delight of its ally the United States, and did so in a completely deniable way if Bond had failed in his little revenge quest. If Bond got himself killed, well too bad-how sad but he was a rogue agent, and you can't blame Mother England for that. Bond succeeding; everything is smoothed over and everybody is happy with the results.