Absolutely it is tough. However, I stopped using diplomacy when I thought it had been (effectively) disabled. Since then I've seen that you can manipulate the AI, and to a great extent.

Notice how the AI is full of cash? Hundreds of thousands of florins...

I know how to swindle 2000 florins out of every faction for every promise to attack a single faction, which adds up to a lot of money... then I bribe the pope and...

Biggest Crusade Ever!