Continuity mistake: In the basement scene, with Jack and Xander, the bomb counts down from 13 to 10 seconds. Then after Xander says his line, the bomb again shows 13 seconds.
Continuity mistake: In the school near the end, one of the dead guys looks through the round window into the library and says 'wow'. In the long shot from within the library, his face isn't in the window. Back to the shot of the window, he's still there.
Continuity mistake: When Xander's being threatened, the knife moves from under his chin to the side of his neck between shots.
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.