Ya know…

… Given how much animosity he displays towards Fowler, I don’t think Peter completely believed that Neal had taken the diamond in 1x07.

But I do think he had to tell/try to convince himself he did. He didn’t really have many choices in that situation. Peter’s generally a stoic, he likes stability, and he likes rules. Legally, he was trapped. He could throw a fit about it, but, well, we see what happens when Fowler does get him to lose his cool. Peter’s options were limited, so I think he weighed going along w/ it as the better, less dangerous option for both of them (Peter putting up a fight might not/probably wouldn’t have stopped them sending Neal back to prison, and might’ve caused more issues). After that, there’s just not enough evidence and he’s under scrutiny, so it’s easier to just shut it down and say he believes it.

He’s protective of Neal when Fowler first starts questioning him, is even willing to take Mozzie as an alibi (curse Neal’s inability to lie to Peter, Mozzie would have backed him up), the extra ‘please’ about remaining silent, icily telling Fowler Neal did good work, blaming Fowler more for everything (‘I was working my ass off to keep this kid on the straight and narrow before you showed up’) after Neal escapes, being wilfully unhelpful in the search (I love how they reuse a line from the first ep to show you when Peter is covering for Neal—twice, in both s1 and s4)… That’s not the attitude of someone completely certain that Neal committed a theft of an insanely expensive diamond. If Peter believed it that strongly, he’d’ve arrested Neal at his house immediately, he wouldn’t waste time groaning about him involving El, and it takes one minute to talk him out of it.

To me, that’s more Peter coping the best he can w/ a situation he feels he can’t change, if that makes sense. He feels powerless, and that doesn’t sit well, so he has to tell himself that this is right, keep his personal feelings out of the equation. Once they have a lead on what’s going on, he immediately starts working on it.

So no, I don’t think Peter believed it as completely as he claimed—I think esp in the conversation he had w/ Neal in prison he was hurt by what apparently happened and that’s why he’s so upset there, and then later he just felt like he had no choice by to force himself to ‘accept it,’ even if deep down he wanted to and did ultimately believe Neal.