Once I have declared war on an Enemy Race I no longer have the Options to make proposal etc they are blacked out, Also when you are Allied you cannot break the alliance only issue threats or demand/tribute.

The Diplomacy section of the game is a work in progress - in fact the only way to break an alliance is to declare war. The problems you've noted are just another symptom of this. Future updates will add diplomatic options or improve the existing ones, but I can't say how long it will take Mike to add them. I believe his top priorities are currently bug fixing and AI at the moment, but those priorities are constantly changing as necessary so perhaps diplomacy will become the top priority before long.

I think I implemented a minimum period of diplomatic blackout after declaring war. That period must elapse before you can send or receive any new diplomatic messages from the race in question.

Yes, I remember you had said that before. It works something like the Bush years.

how about not blackening out but giving it negative weights, i.e. the chance for the AI for example to accept peace offers is weighted negatively for a certain period of time. Human players always can make peace instantly again because they simply are able to just not shoot and avoid each other for the time being. In that case a blackout hasn't got that much meaning and is more or less misleading to other empires who only think they are at war when they actually weren't and would long sought peace.

The idea behind the temporary blackout was that when two civilizations go to war, diplomatic contact is severed for a few turns. It doesn't make much sense to me for the ambassador of a warring civilization to be available for peace talks immediately after war is declared. It also imposes a sort of penalty for declaring war, discouraging players from declaring war lightly just to quickly nab a couple sectors. This is pretty common in turn-based strategy games.

Sorry fro askign here, but I hav eseen minor races ask for mercy before.
Will that be incorporated as a "Surrender Option"?

Meaning, you get a message "X race surrenders! Occupation begins!" just as it would be as if you successfully invaded. The world is now yours BUT the populace is angry and like any invaded world could turn on you later.

It would make sense not every race would be ground down to nothing (BREEN) nor take an armada to pacify. If such an option was available merely a threat might make some races roll over way early.

IE the Mizarians. They pled for mercy, but left me no choice but to brutalize them.

The only bad/fair thing about it is if you haev them as a member or conquered them, someone else could come by and do teh same thing (easy roll over voctory).

So in that case you'd want to spend resources to "protect" your interests there, like a starbase or a nearby fleet.