Continuity mistake: When Cassie and Dawn were talking, just before Cassie got kidnapped, Cassie put her hand on Dawn's shoulder, but in the next shot, her hands were by her side.

Continuity mistake: Towards the end, when Buffy stops the arrow, when she first grabs it her hand drops down to Cassie's mouth level, and her arm's bent at the elbow. When we cut to another angle it's now held at arm's length and at about eye level.
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.