Here are final rules for diplomacy:
Player plays a number of IPCs (varies about the game that is played) and rolls a d6 die. The amount of ICPs should not be too low since then players just use their money to diplomacy. This reflects that winning powers get new allies easier than losing which have no extra IPCs to spend
If the rolled number is one or two, the player can put a pro-faction (non-belligerent*) marker, take away pro-faction marker of enemy or activate a country (which already has own pro-faction marker) that is adjacent to the territory of the major power. The state which the player wants to sway to his faction must have appropriate political system compared to the faction (Axis = dictatorships, Western Allies = democracies and dictatorships, Communists = communist system)
*a state which is leaning to a faction but still stays neutral. It has stopped trading with states that are at war with the faction it is leaning to. Troops of the faction can pass the territory of the minor state.
If the rolled number is three, it means a state wants to join the player’s faction without it actually trying to sway it in. The state which is voluntarily joining must have appropriate political system compared to the faction. The state is determined by a dice roll.
If the rolled number is 4 or more, nothing happens
When a minor state is attacked by a major power, the situation at the game must be analyzed. If there isn’t a war going on between the major power that attacked and some other major power, the minor country becomes pro-enemy faction of the attacker/other enemy faction of the attacker. These two markers stay on the minor country until one of them declares war on the attacker. If a major power that is already at war with other major power attacks a neutral minor country, that minor country joins the other side. Political systems does not matter.
Example 1: In 1939, Germany (Axis) attacks Poland, and Allies declare war on Germany. Poland becomes automatically part of Allies since they are both at war with major power (Germany).
Example 2: In 1939, Germany (Axis) attacks Poland and Allies do not declare war on Germany. Poland becomes pro-Allied/Soviet. Allied and Soviet players conduct Poland’s moves (one unit by Allied, next by Soviet, next by Allied, etc) and purchases together. Poland joins a faction only if a major power declares war on Germany. For example Soviets cannot sway Poland into its faction unless it declares war on Germany. Later Poland becomes only pro-Allies since Soviets attack Poland too. If Poland still has survived to a moment, when Allies declare war on Axis and/or Soviets, Poland joins Allies.
Aggressive powers Axis and Soviets have a threat effect which encourages them to invade neutrals. Every time one of them has invaded a minor completely, it can put a pro-faction (non-belligerent) marker, take away pro-faction marker of enemy or activate a country (which already has own pro-faction marker) that is adjacent to the country that was just invaded. Political system does not matter.
This rules are mix between rules of Unconditional Surrender, HGB’s Global War 1936 and my own thinking.
In case you do not know which minor states had which system:
Mongolia, Tannu Tuva and Communist China were communist states
Democracies were all Nordic countries, Benelux countries, Czechoslovakia and Switzerland (which is not possible to sway into any faction).
All the rest were dictatorships.