Supposing that Britain and France went ahead with this move, whether its leaked or not, what might the possible consequences be?
It would appease Mussolini for a year or two, but eventually, he had much to gain siding with Hitler and it was much more natural. It might slow German ambitions for a couple of months, bu nothing more. Hitler could always offer him more than Western Allies could.
So, if Italy ends up in the Allies come *WWII, provided it still breaks out between 1939-1940 (handwavium if necessary) would there be a 'Battle of Italy' after the Battle of France? Would the Germans steamroll the Italians as easily as the French and British? One suspects mountains would wreak havoc with Blitzkrieg, but there are mountains in France, too.
Better question: Would the Italians just sit on their asses doing nothing, or would Benito send his forces into Austria?
Even more important, WW2 might break out over the Anschluss or the Sudetenland crisis. And even if it gets as far as Poland...will that front work the same, with now having too guard two flanks instead of one?
An alternative would be a pact with the devil for Hitler, namely a real alliance with the Soviets...
That is a very disturbing thought...but what does Stalin stand to gain from it?