Here is a fairly detailed article on the history of the movement in Mexico. It's in Spanish, but I passed it thru google translate and it does a pretty good job at translating the document. It's an article from one of the most prestigious universities in Mexico.
Being in a predominantly hispanic circuit, we have several brother and sisters from Mexico who were witnesses under the conditions that existed back then. They have been interviewed during meetings and they continue to relate how they were not able to pray in meetings or sing because they were under "ban". This article shows that there was not such a thing as a "ban". In comparison, you can see that the restrictions they had were nothing compared to what was going on in other countries. Countries in which witnesses were told they'd better die than giving up their rights to worship God as they understood was required. (Malawi?)
It will also show that the aim of the Mexican government at the time was not to crush religion overall but to fight the political influence of the catholic church. It shows the government was willing to turn a blind eye or bend the rules when it came to minority groups. Yet, if the WTBTS would have admitted to their true purpose, they would have lost all of their real state to the government. The way the WTBTS managed to maintain a peaceful relationship with the authorities, and therefore keep their precious properties, was by presenting itself as aligned with some of the government branches (which included the military) and institutions that were looking at de-fanaticizing people. Asking its followers to not "participate in compulsory military service" would have meant departing from the above. The article never talks about the military service issue that we all know about but it gives the political background for the environment that may have lead to the WTBTS decision to dismiss it as a violation of political neutrality.