haha i watch it as many times as i want. It's a great show +).
Yes he does know that sephiroth will return. However he is also frustrated to know this. I mean, who wouldn't want to outperform their own siblings before their mother? Remember when he talks to Rufus, he sort of reveals his feelings. He wants the reunion to occur so that he see his Mother again. I believe that when Rufus asks him what will happen when the reunion occurs and he replies that sephiroth will return, it is more to scare him than to actually want it to happen. All he knows is that when the reunion occurs, his Mother will be able to control the world like she wanted to. That is why when he could meet Jenova at the church, he doesn't immediately assimilate her. Instead, he fights with Cloud, just to show Jenova that he can be capable to controlling the world too.
Like you said, he doesn't know sephiroth personally, and can only feel him. Why would he want to give his position of authority to someone he barely knows? You must understand that even though he is only an entity, he does have human feelings. Jealousy and such are still a part of his emotions.
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