I'll give an explanation a shot. The keyword in this sentence is Although, because it's suggesting a shift in the sentence from a negative to a more positive tone. The negative in the first sentence refers to the war against each other. The second sentence attempts to follow up at how this dynamic is changing, making loath not a good choice. Reticent ( restrained in expression, presentation, or appearance) is a better choice because it shows that while they are not willing to sign a peace treaty, they both know that still won't attack each other. Their relationship can be described as amiable. In this case, the question would be solved easier filling in the blank for (ii) and then going back to (i).