Answer to Question 1: Distance of their country from yous affects their feelings of your conquest, say Albania would not feel the need to attack if you took over Canada, vice versa, trading and not consistantly being at war can help keep popularity up, which in turn makes other countries less likely to attack you.
Answer to Question 2: The AI can use anything at its disposal but is not always smart, for example, Greece in some modes only makes rockets and rocket fighters but never makes an airport,.
