It was only natural for Konoha Ninja Village to make such a decision. Even setting aside Kazemori Masaki's existing plan to use this opportunity to overthrow the Daimyo, he could never have agreed to such a demand.
Whether it refused or complied, Konoha Ninja Village would damage its reputation. However, the damage caused by refusing the Daimyo left room to maneuver: the village could overthrow him and reshape public opinion, restoring its reputation. If it agreed to his demand, its international reputation would be damaged beyond repair.
Its reputation in the shinobi world was the foundation of Konoha Ninja Village's standing. Without it, cooperation with other countries and shinobi villages could never have gone so smoothly or grown to its present scale. Thus, agreeing to the Daimyo's demand was out of the question.
Of course, although Kazemori Masaki had decided to refuse, he did not reply immediately. He needed to give others time to react and let public opinion build. An immediate refusal would make him seem too eager.
Kazemori Masaki said the matter required thorough discussion and requested permission to visit the Capital to discuss it with the Daimyo, but the Daimyo refused.
As Konoha High Command had suspected, the Daimyo was already being controlled behind the scenes by Tobi, or Katsuya Uchiha. Otherwise, he would never have taken so many baffling measures, much less issued a declaration threatening military action against the Land of Demons at a time like this.
Katsuya Uchiha did not want Kazemori Masaki entering the Capital, chiefly because he feared Masaki would discover that the Daimyo was under genjutsu. Suspicion remained nothing more than suspicion. Without evidence, it could all be dismissed as baseless accusations.
But if Kazemori Masaki entered the Capital, his abilities would surely allow him to find evidence of the genjutsu