According to Finny, why has he been denying the war all this time? How does Gene respond to this assertion?

Finny's confession that he denied the war because he couldn't get involved is something that Gene never even considered before. It is interesting that Finny blocked it out because it was the one thing he couldn't be involved in if he tried; he is so used to being able to get involved in anything that he chooses, that he cannot bear it when there is something he definitely cannot do. But, it was providence that Finny did break his leg, as Gene makes him see; as the kind of person who doesn't recognize teams or sides, who feels free to change alliances for no reason and likes the kind of game where it is him against everybody, he just couldn't grasp the philosophy behind war.

It is good that Finny and Gene come to some sort of reconciliation at that point. Finny forgives Gene for the first time, since he only just stopped denying Gene's responsibility. There is closure in Gene's statements about not hurting Finny out of anything conscious or out of hate, and Finny saying that he believes Gene. When Gene said "this is it" about meeting Finny this time, he knew that they would have to close the issue somehow; with that statement, he foreshadowed his and Finny's reconciliation, and also that something big and final, like Finny's death, was about to happen.