[fridrik]

Is this perhaps a misinterpretation of "within the law"?

"[...] over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all."

They talk of filtering as an all-or-nothing concept. They want to operate unfiltered search (not semi-filtered, or filtered to the extent of the law). "Within the law" refers to the fact that they want to accomplish unfiltered search in a manner that is legal and their statement is rather clear that failing that they will be shutting down.

You're right, though, that this being an ultimatum isn't stated in clear (binding) legalese—quintessentially their wording of "not willing to continue" instead of "will not continue". This is almost certainly intentional.

However, it is a press release that declares intent, generates expectations and has a common and obvious interpretation as a take-it-or-leave-it deal. From a public relations standpoint, Google would not benefit from doing something completely different.