How likely would it be that the Pope and other figures of prominence or importance would have the threat of attack or assassination in this timeline? Given the prevalence of people bombings by certain groups, extreme political movements, and the amorphous nature of communist cells that do not have a state to call their home, would the Pope face a real threat of being killed for the purposes of a group in TL-191 to prove a point?
If we accept Turtledove's version that Italy is never involved in the Great Wars, then the Pope wouldn't be worried about assassination as much as he and his predecessors did in OTL. Featherston might make a comment to France and Britain about permanently shutting the Holy Father up, but is never taken seriously by the Catholic monarch of France and Mosley due to the extreme backlash by the faithful in their respective nations and around the world.
Assassination would be more of a concern in North America due to the more violent nature of nations in that continent in TL-191. Remembrancism and Confederate Freedomism sure do make people more violent.
For the purposes of alternate history, I'd say sure! Give the Leonine City to the pope! Wouldn't be the craziest thing that would happen in this timeline if the Vatican got a bit more "thicc" here in terms of land. In all honestly, it sounded like the Italian government wanted to maintain good relations with the pope as it is. And I guess its really up to the fans themselves. This is a case, I feel, that could really go either way. If you think the Leonine City is given to the Pope, there's possibility there for it - if you think the Pope only got the Vatican, then its pretty much like in our world - if you think the Pope would remain a "Prisoner of the Vatican" and refuse to negotiate, then there is possibility for that here too.
I like to think that the Pope did get the Leonine City. And a extra boost in "security personnel" to help oversee things. Why not, right?
I also like the idea of Leonine City being created, too. I know there are other options, too, but I always try to balance out what would be cool in TL-191 vs. what would be more realistic in TL-191. Realistically, there would have eventually been some kind reconciliation between Italy and the Holy See, with or without Mussolini. But... since TL-191 leans more toward pessimistic scenarios, I'd say that the Pope remains a "Prisoner in the Vatican"...
Oh, all right, why the heck not?
Give Leonine City to the Pope!
I see. And what would prompt the Empire to federalize? Can you elaborate more? Would that even be possible given the conditions of this timeline? Even with a victory in two world wars here, especially miraculously surviving the first one, I can't imagine the process of federalizing would be easy, or even welcomed among the Imperial Austrian court. I'm not saying this is isn't possible -- I'm just wondering how it can be done, given that many of the ethnic groups within the Empire really wanted independence.
Plebiscites might be in an orderly fashion over time, if the Empire can manage it without falling apart in the process, might be their best bet, and Italy especially would be clamoring over it I feel, if it found and opportunity to gain land without blood.
In real life, there was a plan to federalize Austria-Hungary, but the idea died when Franz Ferdinand was assassinated. See:
https://en.wikipedia.org/wiki/United_States_of_Greater_Austria
Even if A-H won the First Great War, the Empire would still be fragile and supported economically by Germany. If Emperor Charles plays it safe, he could resurrect the idea of a federalized monarchy to make sure that people were happy. However, it would not stop independence movements from occurring. Eventually, the Austrian Emperor is going to have to let some states go if it still wants to keep its Hapsburg prestige, regardless of the size of the Empire.
Side note: I always assumed that it would be better for Austria-Hungary to not get involved in the Second Great War, including Bulgaria and the Ottoman Empire. Since Emperor Charles was someone who wanted to end the war, I highly doubt he would want to have his country be involved in another one. See:
https://en.wikipedia.org/wiki/Charles_I_of_Austria