In presenting his modus Vivendi proposal, Lansing implied that the American government accepted the German view that armed merchant vessels were warships; however, when the proposal was dropped by the Wilson administration, it seemed to be reverting to the British view on this question.

(A) when the proposal was dropped by the Wilson administration, it -- can't say whether 'it' stands for the proposal or the Wilson Admin.
(B) after it was dropped, the Wilson administration --'it' can stand for the proposal or for the German view

(C) by dropping the proposal, the Wilson administration -- Good God ! There is no pronoun here. The best answer.

(D) the Wilson administration dropped the proposal when it-- 'It' can stand for the proposal or the Wilson Admin. It looks as though the proposal veered towards the British view.

(E) when they dropped the proposal, the Wilson administration-- The only plural noun is warships, and it will be absurd to say the warships dropped the proposal rather than bombs
_________________

_________________________
Done. Thank you.
_________________