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When you play co-op theres no such problem that you jsut mentioned.
And yes, once you're in a defensive or military alliance, you can build outposts at each other's settlements, just as you would with AI factions.
Not sure if alliances are possible in vs MP games. But I'm pretty sure you can't make an alliance with somebody if you're already at war with one of their existing allies (or vice versa), so it's possible that could've been the issue too.