What exists now is essentially a cold war, with the two factions fighting in proxy areas such as Warsong Gulch and Arathi Basin, much like the way the U.S. and U.S.S.R. would send weapons and 'advisers' to small countries in Africa and Asia.
With the transition from active warfare has come shifting allegiances, such as the Blood Elves joining the Horde after falling out with the Alliance (pretty much all the fault of one Alliance general), and Dalaran electing for neutrality.
CM Nethaera agreed:
This is a pretty good explanation right here (minus the real world references.) It's been an "uneasy peace". Everyone is still a bit froggy and there are some downright open hostilities still very prevalent in Azeroth. There are of course some pockets of 'let's work together to get rid of these very bad/evil/destructive folks here first" but that doesn't mean that everyone has become best friends forever.
Things could easily cool down more or heat up more with everyone refocusing on the old wounds that Arthas has left bare.
So, if we are at peace, then why punt Gnomes? Why pick factions? Why isn't it called World of Uneasy-Peacecraft?
Nethaera is being kind of cagey here with her reference to WotLK possibly either cooling down or heating up the hostilities, but Chris Metzen was very clear at BlizzCon about what Northrend will mean to this "uneasy peace".
At the WoW Lore and Quests Panel, Metzen said that though the exact inciting event(s) leading up to the expansion are not finalized, Arthas will "tip his hat" and "badger" both factions forcing both the Alliance and Horde to send representatives to deal with the Scourge problem.
Old scars only serve as a reminder...
According to Metzen, the conflict between Alliance and Horde will escalate in Northrend -- it will be "front and center".
I am very excited about the end of our official ceasefire. I play on a PvP server because I like the added excitement of the faction conflict and getting ganked by a Human Warlock doesn't make me feel like there is just an "uneasy peace".
Do you want to see more War in WoW? Do you look wistfully back to the days of Orcs vs. Humans? Or do you think the factions should band together to fight the common foe of the Lich King?