Based on taw's research, I've made a mod that fixes (most) of the problems with diplomacy in the game! The key to it is making attitude penalties go away much faster, as well as smaller to begin with. What makes this mod unique (and different from similar mods) is using radically different values per turn, and as base. The rule of thumb is that (eventually), time heals all. The longer the war lasts, the easier is it to make peace. Generally, if nothing else happens, the 'war' diplomatic penalty will go away after around 7 years or so without fighting.The vanilla game had war start out at -140, and get worse by 1 each turn. As well as the ridiculous territorial expansion penalty being completely fixed, still present but perfectly reasonable and exactly what you'd expect it should be. As a general rule, countries far away from your conquests hardly care, counties very close by get concerned, and the nation you took it from hates your guts.
With the mod installed (on hard) I've had multiple AI nations actually make peace with each other. After another country got dragged into a war, but we were unable to actually fight each other, after a few years, and a few turns of steadily decreasing the terms, we made peace on an almost even basis. For territorial expansion, after playing as Britain, Spain still hates me for taking their entire colonial empire (attitude penalty of well over a hundred) 20 years later. On the other hand, Sweden, who lost their conquests of the Netherlands, Hanover and (possibly) Rhineland, but soon after the war ended entered into a trade agreement, after 15-20 years of trade coupled with highly respected government figures, is actually borderline friendly. Meanwhile I have a complicated relationship with one ally who keeps getting war declared on them by another ally. It all started when my two allies allied with each other, then one refused to honor it, after which they dislike each other.
In other words, diplomacy works as it should, and is almost completely fixed.
It's what it should have been to begin with, or failing that what should have been patched.
What it does in an existing campaign - existing diplomatic penalties are unaffected, but a new penalties (or bonusus) in the campaign are, as is everything in a new campaign.
The download
Mod installation: Installs like most other smaller mods, place the .pack file in the usual folder and add it to the "user empire script" (or words to that effect) file.
Other mods:
A mod fixing the port/town wealth bug, where towns in regions with ports never increase in wealth. Now towns in regions with ports increase in wealth correctly. (just get it, can't believe it was never patched): Link
A mod increasing port GDP to composite for its inherent decrease in the mod above: Link
The Orange Crush mod, not by me, but highly recommended, as it slows down the Martha expansion to give time for Europeans to arrive: Link