Frequency domain multiplication
The result is expected as you are simply appending zeros to the product 

fft(A1).*fft(A2)

Which does the time domain interpolation as you describe. However the ifft of the above product results in a series of constant values in the time domain since it is a circular convolution. Appending additional zeroes simply interpolates this for more constant values (in addition to a scaling factor).

To achieve the result you desire, which is the linear correlation of the two vectors, you must interpolate in the frequency domain prior to the multiplication (not insert zeros). This is exactly what occurs if you review the result of fft(A,M) which appends zeros in the time domain prior to taking the FFT, resulting in frequency domain interpolation. 

Essentially, the process is to zero-pad the time domain samples prior to circular convolution, which results in linear convolution. Zero padding in frequency is not actually introduced in the process ifft(fft(A,M).*fft(B,M)).