I wonder what Geoff Hinton's position on this is. He seems somewhat anti-military from some side comments in his Neural Networks course.
In this case what they seem to be doing is allowing the military to use some of the AI tools on Google cloud which are also available for general use. This is a much grayer area - it is one thing to not develop something specifically for the military, it is another to say that we will not provide the military something we provide to the general public.