Can the Diplomat power be used against a player without an active race?
We were wrong.  Consulting the Day's of Wonder FAQ I learned:

Q: Is a race with the Diplomat power allowed to nominate a player, who has just declined or who has not yet had a turn (and therefore has no active race) as an ally?
A: Yes indeed, the only restriction in the choice of an ally is that you cannot choose a player if you just attacked his active race.