One way to break all diplomatic relations (including war) with a faction is to disconnect completely from them (no touching borders, no ships in seas where they have ships or provinces touching it, etc.). I've always thought this "feature" to be a bit silly, but it does work this way.
EDIT: Hmm ... now that I think on it, maybe it won't break alliances. You can ally with anyone at game start even if they're far away from you. I do know that if you disconnect as I described from a faction with which you are at war, your relations with them will revert to neutral. It is the same as in STW.
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