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If we could rebuild the internet from scratch knowing that someone would try to do this, what measures could be put in place to make it impossible to MITM traffic (in other words, make it so the only option is to install monitoring software directly on the user's machine)? Is this something which even can be defeated with current cryptographic theory?

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No, it can't be defeated. If the government says "you can't use encryption on the internet" then it's game over, simple as that. The only thing that stops western countries doing this is the fact that politicians don't realise it's possible (and the horrible UX/deployment issues involved with attempting to install a new root cert on every device your customers may have).

It's not only can be done in theory, it's already implemented in both TOR and I2P. You can't MITM traffic when it's encrypted end2end.

Issue is that cryptography won't help when there is some government that decide to enforce censorship country-wide.

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