The rebel army (there isn't really any government to "declare" anything in eastern Ukraine right now) warned that it was a no-fly zone, but Malaysian probably assumed they were referring to the Ukrainian air force, which had been shelling eastern Ukraine fairly heavily. A recent FAA notice warned of the potential of misidentification of civilian aircraft over eastern Ukraine, but surely nobody thought they would shoot a civilian aircraft out of the sky.

That being said, touching eastern Ukraine with a 30,000 ft. pole would probably be less than wise at the moment.