Either could have been adopted. Would still love to see an HTML "package" format that was similar, where the whole content and assets could be downloaded as a single container, and run offline easily like flash could.
It was a risk not supporting Flash in 2007, one that has paid off in Spades. Apple made the right choice for Apple.
In retrospect, Macromedia would have needed to open source Flash, and aim it as a viable open web standard circa 2007 or 2008 (making it even more difficult for Apple to reject). This would have required starting the process in 2003 or 2004 at the latest. But IE6 was still dominant in 2003/2004, Firefox's success was far from assured, and open web standards were a joke.
The original iPhone was amazing in 2007, it was really a game changer for the open web. I don't think Macromedia could have anticipated the reasoning behind the death of Flash in 2003, never mind make the contemporary case to save it...
The real question I have is: Has Adobe ported their Flash dev tools to produce HTML5/JS/CSS? Are they as good the Flash version, and do they provide most of the same features? I ask because that shift has been foreseeable, and should have been a top priority (to minimize the rise of alternative platforms).
Additionally, I'll add that we can use Adobe AIR to build native apps for iOS or Android or Desktop computers and that's been around for even longer.