"We were supposed to kill the Indian to save the child (p. 35)"

When Mr. P says "We were supposed to kill the Indian to save the child (p. 35)," Junior is shocked.  Mr. P doesn't literally mean that they were supposed to kill the Indian, but he means that to save an Indian child, you have to kill the Indian in him, which is his Indian culture.  When Junior realizes this, he's even more shocked.  Mr. P says this, because as Junior believes, Indians are always poor, and the child can't survive if he's poor, so he has to assimilate and become white to have any chance at having a job and being successful.  Mr. P has changed, and now he realizes that it's not right to take Indian culture away and realizes that by doing that, he's only teaching the Indian children to give up and because the Indians have given up, they can't have hope or get any better.  After this, Mr. P says "You have to leave this reservation (p. 42)" because he doesn't want to 'kill' Junior too.  So, the quote means that to save an Indian child, you have to make him not be an Indian child, but Mr. P now realizes that this isn't true.