It happens to the best of us. And, as it happens, the benefit of having a valuable shrine is that you can afford to keep the Science slider high, meaning that you get less gold from Commerce. This is an interesting read on the subject:
http://www.dos486.com/civ4/index/bank.shtml Warning: It is very math oriented.
I think negotiation would be productive, but that is only my opinion, of course. I do hope that you agree, otherwise we risk paralyzing the nation, and that is not good for any party involved, especially in these dangerous and uncertain times.
@Ravus_Sol: I'm certainly not afraid to anger the monks!

Take that how you will.
I really just want to see the Foreign Adviser Tech Screen to see what the AI has in regards to the lower tier religious techs. They are only good for trading if no one else has them because they are not worth very much. Even if only half the AI has Meditation, we are not very likely to get anything in trade for it because: a) it is cheap in the first place, and b) the AI devalues a tech for each other civilization that knows it. However, seeing the actual trade screen would help enlighten me on the matter.
As for tech plan, Construction should still be prioritized because Catapults will make it much easier for us to defeat enemy armies. War seems likely, so we had best prepare. Unless, of course, Peter is so forgiving as to overlook recent events?
Monarchy: I do not think that we need this immediately for a couple of reasons: There are some happiness resources in Spain we can connect relatively quickly (with proper Worker support), that being Silver and Gold (which needs another city to grab). We also do not currently have enough troops to make Monarchy valuable, although hopefully that will soon change. However, if by the time we research whatever we're doing next our garrisons have grown, Monarchy may be a good tech, after all. I do support a good king, after all.
Feudalism: Depends on our economy. I often find that it's not worth beelining because it takes so long to research before the economy is fully developed. But we'll see. Longbowmen
are better at overall defense that Crossbowmen.
Edit:
Could be very useful, indeed, but we are not Spiritual, so building a Temple first in a new city would not be a very efficient use of resources.
Sorry. Longbowmen cost 50 hammers; Crossbowmen cost 60.