It's an interesting idea. The main problem I have with it is that Mussolini was an expansionist in a way Franco never was. It was that which prevented, for example, the Stresa Front being more successful.
Mussolini saw himself as a Roman-style figure and the conquest of Abyssinia and Libya and forays into Greece were all part of this. Ultimately, I think, he saw Hitler as a way of achieving his goal of an Italian-dominated Med - if not a Mare Romanum in the traditional sense then certainly an area of Italian pre-eminence.
However, let's say that fate takes a different path. Perhaps, as other threads have posited, the Italians and Austrians defeat a German invasion of Austria in July 1934 and Mussolini is feted in London and Paris as a man of peace and supporter of order. This would have also played to Mussolini's inner vanity. Adoring crowds in Paris and London, lunch with George V, a friendly chat with the Prince of Wales, perhaps a telegram of support from Roosevelt and suddenly Mussolini is the "man of the hour".
Let's play it up a little - Mussolini is able to broker a resolution to the Spanish crisis in early 1936 frustrating the Germans once again.
Now, I do think that going down this path will lead to a confrontation between the Stresa Front and Germany at some point - let's say Autumn 1938 over the future of the Sudetenland and Danzig.
However, this thread takes another route so let's follow it. Mussolini becomes tired of the vaciliation of the West and the intransigence of Hitler and opts for a more neutral stance. Italy is resolute in opposing ANY foreign intervention in Spain for example leaving the conflict to drag on. However, it will only protect its own frontiers and not anyone else's.
Austria is annexed by Germany in March 1938 and Mussolini plays no part in the Sudetenland crisis of that Autumn. The German invasion of Poland in September 1939 occurs and Britain and France go to war with Hitler.
Mussolini is not interested in the crumbs of Hitler's war against France and stays neutral as France falls. There will be no North African front as Italy refuses to allow foreign troops to cross Libya .
Italy protests the German invasion of Greece in April 1941 and fleeing Yugoslav and Greek soldiers find refuge in Italian-controlled Albania but the Germans do not cross the border.
The Germans under Rommel battle the British and Americans in Morocco, Algeria and later Tunisia while in the East, British and Commonwealth forces under Montgomery land in Greece in late 1943 and begin the slow process of liberating the Balkans.
D-Day and the relentless attrition of the Eastern Front take their toll on Hitler's war machine and by the spring of 1945, the allies have joined up in the Balkans and on the Elbe. Hitler dies and the war ends.
Though neutral throughout the conflict, Mussolini has faced a difficult period economically despite Swiss financial aid. Trade has been disrupted but the post-war period brings improvement as Italy and nationalist Spain draw closer. In the 1950s, wealthy Italians are the first to see the advantages of tourism in Spain, Greece and Egypt.
Mussolini is fading by the late 1950s and hands power to his son-in-law Ciano, who is widely considered to have been instrumental in maintaining Italian neutrality and propserity.
Benito Mussolini dies on April 28th 1958 - his funeral is a lavish occasion attended by world leaders and heads of state. He is buried in a specially-designed mausoleum at Predappio. Ciano leads the Italian national mourning and is quickly sworn in as the new Duce.
Ciano begins to make changes in Italian foreign and economic policy. In 1960, along with Spain, Italy joins France, Germany and Britain in the embroynic EEC and investment increases. British and German tourists begin to visit Italy in larger numbers. However, Italy refuses to join NATO and joins with Yugoslavia and Spain in the Mediterranean League, an integral part of the non-aligned movement.
Ciano visits Nasser in the mid-60s and urges him to seek a rapprochement with Israel. When the army takes power in 1967, Greece joins the Mediterranean League and leaves NATO.
Yet, the age of the dictators is over. Ciano falls ill in the early 70s and dies in Rome in early 1974. With the passing of Ciano, Salazar and Franco, the old Mediterranean League is fragmenting.
With Ciano's death, the Italian Fascists descend into civil war and the Army takes over promising a transition to democracy. The "wave of democracy" sweeps through Portugal, Spain, Italy and Greece in the mid-1970s.
In January 1976, the first free elections for over fifty years take place in Italy. The Christian Democrats win most votes and seats in the new Parliament and Giovanni Leone becomes the Prime Minister. Aldo Moro is elected President soon after.
The path to democracy isn't smooth - there is an abortive Communist uprising in 1978 and an attempted coup in 1982 but by the mid-1980s Italy is an integral part of the EEC and is on the cusp of joining NATO.