Welcome To The Hellmouth (1) - S1-E1
Audio problem: When Buffy meets Angel, when she says the line "What I want is to be left alone!" and Angel replies "You really think that's an option anymore?" pay attention. Buffy's last few words don't quite match her lip movements, and Angel's lips don't seem to be moving at all for his line. The audio looping is a little sloppy. This is better seen in the brighter HD remaster, but is also noticeable in the original, darker standard definition master.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.