A brilliant analysis.
What do you have to say about Britain's performance against Napoleon? Specifically, diplomatically?
Britain was following a very aggressive policy that could have made them look like a war-monger if Napoleon had played his cards right. In 1803, even without a declaration of war, they seized all French and Dutch ships (and their crew) in and around Britain, ending the peace of Amiens. This was dangerous diplomatically, but not so militarily. The British navy was stronger than the navy of all of Europe in the early nineteenth century. However, they counted on Napoleon taking more than was feasible, and their calculations proved right. Austria had never reconciled herself to losing as much as she had in the previous treaties, and the British stipends brought in Russia, since they were also unhappy with the way the previous war ended. Britain kept subsidising every country that could/would make war against Napoleon, and they bought cannon fodder with British gold (something they had, thanks to the successes in India and other colonies). Britain's diplomacy was basically to keep finding allies on the continent with gold, and hold out at sea, until Napoleon made a mistake. This was similar to the Fabian strategy against Hannibal.
And what would or could they have done had Napoleon followed your advice?
If Napoleon had gone into a pacifistic mode, you mean? I don't see why they should do anything. Napoleon is not going to be in a position to threaten Britain in any case in the foreseeable future. The French navy was in shambles - it needed a long time to be resurrected into a capable force. Britain was in no danger, and their (and everyone else's, as well) policy was never to have a hegemon on the continent. If Napoleon shows no signs of becoming a destabilising force or hegemon, they would not need to do anything. In fact, antagonising large parts of Europe was anathema to Britain. They depended on trade, and trade depends on trust and goodwill. British actions came dangerously close to ruining that.
In 1802, Napoleon had got everything that France could possibly want (and more, - infact, that was the problem!). He had got the border of the Rhine, (the farthest borders of France envisioned by anyone), security for his country by having puppet states in Netherlands, Switzerland and northern Italy, an allied Spain, and Bavaria, and most importantly, a peace with everyone which fully permitted the state of affairs. He should have returned Ionian islands to Austria. allowed them a say in northern Italy and Germany, where they had legitimate interests, and forborne from invading Naples, or Sicily, or anywhere else. In fact, a northern Italy split between Austria and a French puppet state would be the best way of ensuring Austria is non-hostile. The Italians would, after the birth of Italian nationalism, be more inclined to be favourable to an Italian republic (particularly if Napoleon does not intervene too much in it), and be hostile to Austria, since it was a foreign occupier. Then, Austrians would be dependent on the French keeping their part of Italy peaceful (since, Napoleon can influence the north Italian republic, and keep them from any rash intervention).
In fact, a clever policy for Napoleon would have been to push for French colonisation (earlier French north Africa, for instance? Or maybe even Indo-China?), and go into a kind of partnership with Britain. Something like a support for each others' claims, and non-interference in each other's colonial claims and affairs. This would have benefited the economy, helped integrate the new areas into France (after all why would a Dutchman or German of the Rhineland, or a Savoyard or Swiss of the south have any sympathy for the French rulers, if he cannot benefit economically?) built up French navy, given crews and ships a chance to venture out, and exercise their new skills, and most of all, found something for the rabble of the army of the Revolutionary wars something to do, rather than burn down stuff in Europe.
More importantly, Britain's attack on the fleets of neutral countries had caused a lot of heartburn against Britain. Napoleon should have insisted on shipping safety, and created a Naval Safety Union (this was being discussed by most European capitals in the wake of the British attack), offered never to seize ships and/or crews without declaring war, and have turned the issue of the British evacuation of Malta into an issue between the Russians and the British (Malta was under the Knights, whose technical head was the Russian Tsar).
The crowning folly of Napoleon was his de facto unification of Germany, by creating the Confederacy of the Rhine. It de facto united large parts of Germany, turned Austria and Prussia into perpetual enemies of Napoleon, because their interests were destroyed, it gave the Germans an idea of the kind of power they could wield united, and finally, destroyed Germany in his wars, turning the Germans into irrevocable enemies.
But then, as they say, hindsight is 20-20.