Literally the only demand made by the dominion was they stop going through the wormhole and making incursions into.their sovereign space. The federation has a neutral zone with the romulans that has lasted like 100 years or more by that point, but if there’s a wormhole it’s somehow their god given right to poke around someone else’s territory? Not even to mention the Cardassian/Romulan pre emptive attack on the Founders homeworld. Prior to that they just sent spies and harrased ships in the gamma quadrant. Seems like a more than reasonable cause for war to me.
I found an interesting quote from Ronald D. Moore. During the run of the show, Star Trek staff were answering fan questions online. One of those questions:
A very telling look into the mind of the showrunner.
So it seems like people at the time did notice the same things as you did, and came to a similar conclusion from the text. However, the text is still ambiguous about where the Dominion borders are. This quote does explicitly state that the wormhole is outside those borders, citing that trade and exploration in th eGamma Quadrant had been happening for a couple of years prior to the war (which is in the text). I think your argument is otherwise sound, and there’s definitely blame on the part of the Federation and other Alpha Quadrant powers in terms of taking the situation too lightly. They should have been way more interested in figuring out what the geopolitical landscape on the other side of the border was like before they sent trade missions and colony ships.
That being said, the Dominion responded to incursions with asymmetric hostility, escalating at every opportunity. First contact with the Federation was a Vorta spy pretending to be a refugee of the Dominion, trying to get information out of Sisko. The Jem’Hadar captured Sisko, and the Federation sent ships to go look for him, ending in the Jem’Hadar suiciding one of their ships into a Federation ship that was trying to flee. Only incidentally do we hear that the New Bajor colony had already been destroyed, and its population massacred.
I’m inclined to @HarryLime@hexbear.net’s interpretation, especially the part about the Dominion not having an intention to leave them alone. Definitely the result of bad or no diplomacy all around, but I think it’s a bit generous to think that the Dominion wouldn’t have been hostile from the jump. That’s just how the writers wrote them: as violent, amoral, xenophobic imperialists. Yes, the Federation et al should be more careful about wandering through a magic door to the other side of the galaxy and start measuring curtains and getting huffy with the locals, but the response from the Dominion on every level was way overboard. The Dominion should have announced themselves properly at some point before there was essentially already a war happening, and the Federation should have mostly stayed on their side of the wormhole until they could reliably establish relations with whomever was on the other side. I think war would have happened anyway, with the specific inciting events in the show equivalent to Archduke Ferdinand getting shot and causing everyone to lose their minds subsequently (not to lean too far into the World War One comparison).