How did Andreas Baader and Ulrike Meinhof end up on the list of prisoners to be released, by Black September?

Simple answer: and one time, in terror camp…

Baader himself was known to the top tiers of the Palestinian organisations that are held responsible for the acts in Munich. They met in person and agreed on a shared strategy. They met repeatedly between 1970 and 1972 shortly before the attck in Munich was planned.

None of the demands of the Palestinians were met. They grew tired of the negotiations and just wanted to get out of the situation, to continue their demands from elsewhere.

The Red Army Faction did not so much train with the PLO but with the Fatah and then the PFLP. Although it all is nice mess between Fatah, German neo-nazi groups, secret polices like the West-German Verfassungsschutz…

Baader and twenty others went to Jordan in 1970 to found the RAF formally and train there under the auspices of the el Fatah movement. The main Palestinian conspirator seems to have been Abu Daoud, a Palestinian living in Berlin. East-Berlin, Prenzlauer Berg to be precise. He claimed that Arafat signed off on that action and then retracted that statement years later. As some involved died violent deaths and the secret polices were involved in almost each and every step, holding the relevant files closed, we will not know who really pulled which strings in this.

It has primarily two aspects that were to be communicated by including the two German names on that list: the RAF is regarded as a leftish organisation and and therefore anticapitalist in nature. Israel was often painted in that scene as a capitalist/zionist occupier of Palestinian territory and therefore evil. Antisemitism is the anticapitalism of the idiots and a connection between Germans and their nice relationship with Jews should be known by now. This is not only evidenced by the Nationalsozialistische Kampfgruppe Großdeutschland that supported the Palestinians before the attack. The left as a whole has much too often some problems with antisemitism within their ranks, making alliances with anti-Israel groups quite appealing for them. Just because the Fatah went against Israel was often enough to regard them as left enough to be on the same side of the common cause…

Second the terrorist movement of the seventies was indeed profoundly international. The Munich group also included another name on the list of prisoners to be released. Kōzō Okamoto member of the Japanese Red army.

The higher echelons of Fatah knew the members of the RAF well. The only strange thing is that on a list already longer than 200 names they did not include all of those RAF members in prison at the time.

At the same time, Fatah was in the midst of its own operation intended to capture the world stage. Fatah’s Black September Organization horri ed the world by taking Israeli athletes hostage during the 1972 Munich Olympics. In so doing, it did not forget its troublesome trainees or their propaganda value. Seizing on the hype surrounding their imprisonment, the Palestinian attackers included the release of the RAF’s leaders among their demands in exchange for the Israeli athletes.
_{Tricia Bacon: "Why Terrorist Groups Form International Alliances", University of Pennsylvania Press: Philadelphia, 2018, p111–112.}

But the fact that the demands called for Meinhof instead of Ensslin might indicate that communications weren't that tight since Meinhoff was by then much less important for and within the group.

They seized nine other Israeli athletes as hostages and issued their demands: the release of 234 Palestinians and non-Arabs from Israeli prisons, the release of Andreas Baader and Ulrike Meinhof in the FRG, and safe passage to Egypt for all concerned. (Footnote: Black September would later tell Voice of Palestine radio that they had demanded the release of ve “revolutionary German girls belonging to the Baader-Meinhof organization,” which ve being left open to conjecture. (United Press International, “Other Arab guerrilla demand told,” Hayward Daily Review, September 8, 1972.))
_{(André Moncourt and J. Smith: "The Red Army Faction: A Documentary History Volume 1, Projectiles for the People", PM Press: Montreal, 2009, p 189.)}

So we have a few reasons: old acquaintances from terror camp, international alliances, common enemy "the (capitalist/zionist) Jew" (perversely for the neo nazis involved "the international Jew"?!)

The comrades of the RAF issued this official statement:

Die Aktion des »Schwarzen September« in München – Zur Strategie des antiimperialistischen Kampfes, November 1972

3. Faschismus Die Aktion des Schwarzen September war antifaschistisch.
   Sie hat den Zusammenhang zwischen dem alten NS-Faschismus und dem entfalteten Imperialismus als dem erst durch und durch faschistischen System hergestellt. Die Olympiade Sie hat ihn äußerlich hergestellt, indem sie auf die Olympischen Spiele zielte, die die Erinnerung an 1936, Auschwitz und Reichskristallnacht auslöschen sollten, insofern sie die Fassade abgeben sollten für das, was gegenwärtig in Vietnam läuft, Palästina, Israels Gefängnissen, der Türkei, Uruguay, Brasilien, Griechenland, Persien. Insofern sie als mörderische Wettkämpfe Sieger und Besiegte kennen, das Gegenteil von Befreiungskämpfen, von solidarischer Aktion sind, statt dessen Konkurrenz-Kämpfe um imperialistisches Selbstbewußtsein von Industrienationen – Aggressionsspiele.
   »Bild«
   »GOLD-GOLD-GOLD«, hechelt, hetzt, pfeift, keift Bild in den ersten Tagen der Olympiade – »Ich sah sie sterben nachts um elf, wie die Spiele weitergehen«, war die Bild-Schlagzeile am 7. September. – Wollt Ihr den totalen Sieg? – Jaaaaa!
   Die Sportler
   Das betrifft nicht die Sportler. Die haben jahrelang trainiert, die wollten Wettkämpfe austragen. Nicht sie gaben der Olympiade den Charakter einer imperialistischen Veranstaltung. Sie waren an ihr beteiligt wie der Lohnarbeiter am Kapitalismus – es geht nicht ohne sie, aber sie sind Objekt des Spektakels, Objekt von Neckermanns Sporthilfe. Daß sie Spaß daran haben, hebt das nicht auf.

Wer hat das Massaker in Fürstenfeldbruck gewollt? Die Sportler, die von der Olympiade abgereist sind, haben es nicht gewollt. Die Menschen, die bedrückt und erschrocken die Fortsetzung erlebt haben, die die ungeheure Kaltschnäuzigkeit des IOC und der Springerpresse empfunden haben, haben es nicht gewollt. Idiotisch zu glauben, die Revolutionäre hätten es gewollt. Sie wollten die Freilassung der Gefangenen. Sie wollten das, was 100 000e in diesem Land immer noch wollen: daß nicht gefoltert wird – weshalb die politischen Gefangenen hier nicht gefoltert werden, – daß Landraub, Mord, Napalm, Bombenterror gegen palästinensische Flüchtlingslager durch Israel nicht geschieht. Auch deshalb sind sie massakert worden. Weil Erfolg unendlich viel mehr Identifikation mit ihnen und ihrer Revolution bedeutet hätte – mit ihrer »menschlichen Haltung«, ihrem Mut, ihrer Solidarität, als eine Niederlage das kann.

Schwarzer September
An der Aktion des Schwarzen September in München gibt es nichts mißzuverstehen. Sie haben Geiseln genommen von einem Volk, das ihnen gegenüber Ausrottungspolitik betreibt. Sie haben ihr Leben eingesetzt, um ihre Genossen zu befreien. Sie wollten nicht töten. Sie haben ihr Ultimatum mehr als aufgeschoben. Sie haben angesichts der unnachgiebigen Haltung Israels vorgeschlagen, die israelischen Geiseln als Gefangene zu behalten. Die israelischen Geiseln waren mit diesem Ausweg einverstanden. Sie sind von den deutschen Behörden genauso getäuscht worden wie die Revolutionäre. Die deutsche Polizei hat die Revolutionäre und die Geiseln massakert.

Die Aktion des Schwarzen September in München wird aus dem Gedächtnis des antiimperialistischen Kampfes nicht mehr zu verdrängen sein. Der Tod der arabischen Genossen wiegt schwerer als der Tai-Berg. Der Stein, den sie in Fürstenfeldbruck aufgehoben haben, diese Bestien, wird auf ihre eigenen Füße fallen! Solidarität mit dem Befreiungskampf des palästinensischen Volkes! Solidarität mit der Revolution in Vietnam! Revolutionäre aller Länder, vereinigt Euch!

English version at The Black September Action in Munich: Regarding the Strategy for Anti-Imperialist Struggle

Emphasis in bold is mine. Translation of that part:
"It's idiotic to think that the revolutionaries wanted it [the deadly tragedy at the airport]. They wanted to release the prisoners. They wanted what hundreds of thousands in this country still want: that no-one is tortured – which is why the political prisoners are not tortured here [surely meaning "not to be/shall not"; only they didn't manage to write that out into a proper German sentence] – that land robbery, murder, napalm, bomb terror against Palestinian refugee camps by Israel does not happen. That is also why they have been massacred. Because success would have meant infinitely more identification with them and their revolution – with their »Human attitude«, their courage, their solidarity, as a defeat that can."

This is only partly a truthful explanation. It is of course their own impression management and then again, due to lack of intense communication in part also an attempt to make sense of what happened. With all the revealing tries at justification readily present and visible. Internal communications later revealed that while this pamphlet was widely circulated it seems to be uthored by meinhof alone and met the disapproval of Baader and Ensslin.

The other faction, comprising around 50 activists, continued to call itself the JRA. Fusako Shigenobu led the group and sought to align its actions with those of other international social revolutionary and Palestinian terrorist organizations. She forged particularly close ties with the Popular Front for the Liberation of Palestine (PFLP) and relocated with her followers to its camps in Lebanon.
In May 1972 the PFLP called a summit meeting with the intention of furthering international cooperation between extreme left and Palestinian groups. Representatives at the summit included Abu Iyad and Fuad Shemali of the Black September Organization (BSO), Andreas Baader of the Rote Armee Fraktion (RAF, or Red Army Faction), and Shigenobu of the JRA. Several other terrorist entities also allegedly attended the meeting, including the Provisional Irish Republican Army (PIRA), South American groups, and the Turkish People’s Liberation Army, a forerunner to the current Devrimci Halk Kurtulus Partisi/Cephesi. Three weeks later, in a demonstration of this international solidarity, the JRA carried out its most infamous attack—the attack on Israeli’s Lod Airport, undertaken on behalf of the PFLP.
_{Richard Warnes: "Japanese Red Army", in Peter Chalk (Ed): "Encyclopedia of Terrorism", Vol 1, ABC-Clio: Santa Barbara, 2013, p 366.}

Note that while almost all the West German fascist groups and at least the beginnings of the RAF and other terrorist organisations were products of the Verfassungsschutz the Japanese Red Army operatives were registered as agents also on the payroll of the East German Stasi (WP: Shigenobu, TP-article.).

Just to prove how nicely that all continued, and to give further context on the very tangled webs that were spun at the time:

The "second generation" of the RAF was motivated as one primary concern by the desire to free their comrades of the first generation from prison, as they accused the German state of torturing these "political prisoners" in jail.

The second generation then re-used the international infrastructure that was set up before by Mahler and the German secret polices. Both secret polices, the West-German Verfassungsschutz and the East-German Stasi knew about those desperados, had informants infiltrate them and helped finance, equip and network the organisation with their Near-Eastern "friends".

The most important of these friends was Wadi Haddad (aka Abu Hani), founder of the PFLP, who was expelled from the offical PFLP in 1973.

When the second generation of the RAF planned their "Offensive '77" to press free their comrades they brain stormed with Haddad about what to do and he offered to just hijack a few passenger planes. That was on the agenda already and it was a small step for a man to include a few other names on the list of demands to be made.

Sources:
Stefan Aust: "Der Baader Meinhof Komplex", Hoffmann und Campe: Hamburg 1985. (You have to use this edition. The author changed it for the worse later. That is one reason why the movie is really bad to begin with.)
Sven Felix Kellerhoff: "Neonazi-Spur beim Olympia-Attentat 1972", Welt, 17.06.2012

Regarding Aust, he writes in the latest edition of his terrible book:

The organizer of the attack was, according to the intelligence of the Israeli secret service, Hassan Salameh, the 'Abu Hassan' who had been training the Baader-Meinhof group in the Jordanian Palestinian camp two years Earlier.

While this author has some undeniable insider knowledge, large parts of the book are journalistic in nature and have to be characterised as the work of an unreliable narrator.

_{Hyperlinks in quotes are not in the original… If a link in this answer goes to specific Wikipedia entry, be sure to compare all the articles in all the languages you can read to get a glimpse of how much misinformation and desinformation goes around.}