No matter what I do in the peace menu, the two special peaces, "white peace" and "create puppet" do not seem to ever not be grey or work.

Additionally, when fighting a faction, even if one member is willing to make peace, many others are not until you've conquered a significant portion of their territory, even at war exhaustion 100. It's very difficult to make peace with a faction, and it shouldn't be. peace should be negotiated with one faction at a time.