I don't play anymore so no dog in this race....

That said...I suggested a similar idea years ago and am surprised at the consistent resistance to shrinking the number of cabals in logical ways that would actually create a number of RP opportunities to exploit.

You can (if so desiring) search for the post I did but the gist was giving some protected cities to Empire and some to the Fortress. This way you would have actual territories with a treaty between the two enforcing peace and order within those protected cities.

As for the last concern, that is what demotions and Anathema is for. Empire should be directly taking over cities because its an EMPIRE. And as you pointed out Fort should see this and step in to protect the people in those cities not controlled by the Empire.