Peace, according to John Kreese, is just the lull between battles. Kreese sees life as war; there must be winners and losers in all things, and his side, as far as he's concerned, must win. Always, and at any cost.
This is what he tells Daniel in the Miyagi-Do dojo, when Daniel finds him there, smoking a cigar and gloating. And it's what he tells Johnny and the students of Cobra Kai during their special training exercise at Coyote Creek, where they are divided into teams and pitted against each other. And it is what ultimately persuades Johnny to tell Kreese to leave and never come back. Johnny insists that there is a difference between no mercy and no honor, and he knows which he wants his version of Cobra Kai to embody.
Miyagi-Do are also doing their own special training, outside in the extreme heat and in the cold, where Demetri makes a small amount of progress. Thanks to Kreese's ominous warnings, Daniel is on edge and feels as though he needs to prepare them for a fight that they might not be able to avoid. The problem is he is missing important work commitments to do so, further frustrating Amanda.
The exercise at Coyote Creek essentially boils down to a war between Kreese and Johnny's conflicting ideologies, just using Miguel and Hawk as proxies. It was obvious that there was mistrust forming between the two senseis, but it really solidifies when a victorious Miguel cheap-shots Hawk under Kreese's instruction. While fighting, Miguel finds out that Hawk stole the Medal of Honor. After the fight, Miguel ended up winning and stole the Medal from Hawk. Although, Raymond, now calling himself Stingray, ends up winning the event after hiding in the mud and stealing Miguel's headband. In the dealership, Amanda reveals the truth behind her ever since Miyagi Do opened. She told her that she's been running the business by herself with no helpers like Anoush.
Back at the LaRusso's, Robby and Sam had their first kiss. Having retrieved Mr. Miyagi's Medal of Honor from Hawk, Miguel returns it to the LaRusso house, giving it to Robby at the front door while Sam is upstairs. However, Robby hides this information from Sam. Back at the dojo, Johnny visits Kreese at the dojo and talked about what's responsible for their students. After having their brief argument, Johnny tells Kreese to leave Cobra Kai.
- The scene where Kreese arrives at Miyagi-Do is a subtle reference to a scene in The Karate Kid Part III where Mike Barnes arrives at the dojo to attack Daniel.
- When Daniel takes his students to a meat cooler for training in the cold, the boxes that are there are labeled with stickers written “Fernandez Meat Co.”. This is a reference Freddy Fernandez, the first person Daniel befriends in the first Karate Kid, who is seen wearing a t-shirt with the phrase “Makin' Bacon”. It's likely that the establishment belongs to Freddy, which implies that he and Daniel still remained friends, even allowing the latter to use his meat locker to train his students.
- The reason why Robby lied to Sam about the medal was because he knew that if she knew that Miguel returned it, she would've had second thoughts about being in a relationship with him because Robby was probably aware that Sam has feelings for Miguel.
- It is safe to assume that after Moon's conversation with Sam, Moon must have figured out that Sam wasn't as over Miguel as she had thought.
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