I want to bump this thread back into the front of the testers because I consider Diplomacy to be the weakest aspect of any type of World/Galaxy strategy game when it should be one of the strengths. This is likely to be a long post, so I apoligize in advance for the length.
While many have pointed out the inconsistances of AI players during diplomactic discussions based upon player history, unit placement, past agreements we still haven't really got to the heart of what diplomacy really means in a game. At least not in my opinion.
First, I'll state up front, that building up trust and honor among potential AI intelligences IS a very important factor. I definately want to build relationships with my neighbors and when I trade with them, give them gifts of money/technology/units that should take things in a positive direction, while if I do things like demand tribute/extort/declare war those actions take things in a negitive direction. Many here have already addressed those issues and I don't have anything to add in that direction other than to say that your actions as a player should play a strong part in whether your AI opponents trust you or not.
However, diplomancy should be a lot more.
A good AI should notice milatary unit build up on it's borders and not only call the player (or opponent AI) on it, but also send emmissaries to it's friends and say 'Blue is building up armies on my borders, we have significant history and trade agreements in effect, would you consider either signing a support agreement in case of war to possibly make Blue re-consider making war on my country or perhaps would you send a emmissary to Blue and indicate your disapproval?'.
Which brings up another point, there should be a method in the game to send a message to a computer AI and indicate that it's recent actions have been met with 'approval' or 'disapproval' (maybe a a choice of Strong/Mild Disapproval/Approval) that the AI should consider and NOT automatically have it reduce or increase it's atittude toward the player. For example, if Blue wars on Red and you send a message of Strong Disappoval to Blue, Blue would consider it's current relationship with you (neutral perhaps) and decide it doesn't really care what you think, however, Red might look positively on the message.
Friends share information. Every government has a spy network and every kingdom in Elemental should have one as well. It can start out primative, but it should exist and be something that we can improve. Information should be shared (or not) based upon if a kingdom wants you to know something or not. So if Green and Blue sign a trade agreement, maybe Red finds out about it and lets you know. Or if Blue has a technological breakthrough and learns how to build a particular type of seige engine, that imformation can be passed along as well. In having relations with the computer AI, we should not really know what technologies or spells they have unless we have either a good spy network or have relations with another kingdom that has passed along that information.
Agreements between kingdoms should be more that simple non-agression pacts, alliances, trade or research agreements or closed/open borders. As been mentioned here, I would like to be able to tell the Blue kingdom, that I would like them to defend or move troops to a certain area (assuming we have a agreement in place) or have the AI suggest something like that to me. I think kingdoms should be able to set trade tariffs on goods entering their kingdom, much like tax revenues are used to tax your population. If you increase your tariffs too high, other kingdoms will trade elsewhere. Any agreement should be allowed to be demanded as a tribute/extortion of another kingdom. It would be great to be able to have different tariff percentages to every fraction.
Perhaps Research Agreements could allow for technology to be instantly be shared between kingdoms based upon which type is negotiated. For example, Blue and myself could agree to share Adventuring technology, but none of the other technologies are shared.
Also, when making a agreement/tribute/extortion request, other conditions should be allowed to be added to the offer, such as 'I will trade you 1 horses for 1 iron, or I will cancel the open borders agreement.' It also would be great if we could send something along the lines of a 'tone' of the message. For example, if the message is sent with a Strong tone, it means that if you refuse this offer, I will also take other steps you might not like but if it is sent with a Weak tone, it means I would very much like to to do this for me, but if you choose not to do it, I will not take your refusal in a bad way. Again, if you send every message in a Strong tone, eventually other kingdoms will not likely want to deal with you and will make deals with others.
It would be great if agreements (at least alliances and that type) could be made between more than one kingdom. For example, you could offer an alliance to Blue and Red that indicates that you all want to ally together or perhaps between the three of you, you would set the trade tariff to 10%.
Just some additional ideas to what has already been posted. With the game getting closer to the 1st possible release date, I thought this would be a good time to talk up a portion of the game that has yet to be explosed.