GE: Its definitely a valid question. I think you have to get into the Confederate mindset. Even at this point in the war the evidence is that a majority of pro-Confederate citizens believed the war could be won militarily. Many still expected foreign intervention. It is hard for us in this era to understand how poorly informed people in the Confederacy were both about hardening attitudes in Europe and indeed in the North. Many leaders in the Confederacy were also blind to the reality of their situation, though some willfully so. Others, the realists, were concerned about the fate that awaits them. Many expect to be tried for treason and hung so fighting on doesn't seem that illogical. Peace may have been a false hope for some, but in those dark days it persisted nonetheless.
JAW: But you are right than anyone reading Northern newspapers, talking to Northern soldiers should have seen that talk of a negotiated peace was hopeless. The radical spirit was abroad in the north. Memorials to David Hunter could be found in even major town. The question was not truly whether the Democrats might win the presidential election, but rather which wing of the Republican party would be ascendant in Congress - the conservative conciliators who would support Lincoln's plans for reconstruction or the radicals who meant to put the south down for all time.
One other thing - I would like to see a President, Lincoln or Seymour, tell Kearny "The War's off". Though it is perhaps an exaggeration to suggest Kearny or any other army leader would disobey the order directly, I suspect the Union army would not have been happy at all about such an order when victory was at hand. 3 years of war had radicalized it to an extent no one could have predicted. And as for Kearny's attitude, well its not for nothing that Bismarck would later call him "perhaps the most dangerous man I have yet met".
[More both in that quote and about that quote will appear post war...]
