It's actually perfectly logical. Fontaine tries to take over via economic control of ADAM and the development of newer and deadlier plasmids. Ryan, not willing to be beaten out, eventually drops the hammer on him. Fontaine, seeing the writing on the wall, fakes his death and creates the Atlas persona, using his stockpiles of ADAM, plasmid research, and his keen if cynical understanding of how people work to convince the downtrodden to rise up and follow him. Anyone who finds out the truth dies.
Meanwhile, he worked behind the scenes, using Ryan's bastard son as a test subject to create, in effect, the perfect weapon. Not only was he easily controllable thanks to the WYK programming, but since he had Ryan's genes, the genelocks- mentioned as being basically crap since relatives of those programmed in could use anything genelocked to a given individual -were all fair game. This included the Vita-Chambers, bathospheres, and ultimately the master control unit in Ryan's own inner sanctum. Fontaine played the long game from both sides; either Atlas and his men would take over, or his custom-designed assassin would bypass the majority of the defenses, up to and including death thanks to the aformentioned Vita-Chambers, and be able to shut Ryan down.
Why did he use the Atlas persona all the way up to Jack shifting the city to his control? In case anyone, including Ryan, was listening in and figured it out. WYK was often slid into conversations, seemingly just as a quirk of speech on Atlas's part. Fontaine underestimated Ryan, however; his own agents, or possibly even Ryan himself, gathered the data about what was really going on and pieced together the clues. Follow Ryan's dialogue in the later levels... he's begun mentally to unspool the secrets of who Jack is and how he came to be there. Once he figures them out... well, it was pretty straight forward from there.
And why does Tannenbaum keep you ignorant? A variety of reasons come to mind; for one, if she gives away that she recognized you and tries to explain things, Atlas's next comment could easily be 'Would you kindly shoot her in the head?'. Even failing that, Tannenbaum isn't a threat to Atlas/Fontaine directly... getting involved in a way that legitimately compromises that could make her, as well as the Little Sisters she'd rescued, targets. She knows what Fontaine- and you -are capable of. Hell, Fontaine even directly states that once he's done with you, he's going to 'take his time' with Tannenbaum and the Little Sisters.
Not sure how it came to be that you assumed Atlas's actions didn't make sense. Partly because there WAS no Atlas. There was always just Frank Fontaine, conman, businessman, monopolist, would-be tyrant, bully, control freak, and all around complete monster. Atlas was no more real than the character an actor might portray. And Ryan never figured out the depth to which Atlas/Fontaine's plans ran until it was too late to do anything but try and take him- and Rapture -down with him. Hell, even then he didn't have all the clues... note that in the end, he was still calling Atlas out when he prepared to burn Rapture to the ground. To his death, he at least believed Atlas and Fontaine were different men. He wasn't in on it, and there was no Atlas to be in on things; there was, again, only Frank Fontaine.