The diplomacy does seem a little feather-brained.. but amazingly, sometimes, it works. Especially when your faction is powerful.

Interestingly, in my German campaign, my German factions became a powerhouse without ever leaving or expanding my initial terrioty. What I did was basically play defensive, and up the tech levels with money earned from the map salesmen. However, when the treasury gets low I would form a pillaging army, and go attacking the Gauls. Never conquered anything, but attacked and sacked their cities for years, and then returned home.

Now, after I repeat this for some 100 years, eventually the Gauls and Britons became weak. Before launching another pillagin party, I decided to send some diplomats and threaten them a bit. And what do you know - I got me a 500 denari per turn for 40 turns(20 years) tribute from the Gauls, and made them my allies, and they've been faithful ever since. In the same way I've put the Britons under my control. Ofcourse, the Romans never ever surrender, so nowadays I send pillagers to attack the Italian province every now and then.