School Hard - S2-E3
Revealing mistake: When Spike is talking to the Anointed One for the first time, one of the henchmen tries to rush him from behind and Spike backhands him without even looking, but Spike's hand movements, the reaction of the henchman and the sound of the punch connecting on the audio track are all out of sync.
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.