It's a bit of a difficult situation all round and I'm not sure who has the upper hand really.
The RF are in a bit of a predicament re engagements with too many elderly/sick/disgraced royals currently. In ten years time the problem will be worse unless William accepts his children will have to hit the ground running at 18 playing a prominent part in royal life.
I don't think he wants this at all and as much as he is angry and 'done with' Harry now preventing his children having to take a very public role early in life might turn out be Harry's trump card.
That said I can't see the British public being accepting of Harry getting the half in/half out deal he wanted in the first place and splitting his time between here and the US. I think that will also remain untenable for the palace too.
There's a chance that H&M could be rehabilitated as minor royals but they would have to come back to the UK full time and eat humble pie for about a decade. I don't think there is a chance that Meghan will ever come back but if the marriage doesn't last it's possible Harry might.
If William takes the throne in the not distant future I think a slimmed down version consisting mostly of him, Kate and the children will be popular and well liked but his children will not be able to have the extended young adulthood both he and Harry enjoyed.
That might not be the worst thing even though William probably wouldn't see it that way. There's a balance to be found between privacy to grow up and being a bit directionless well into your 20s and 30s waiting for the moment you are asked to step up.