Knowles alludes to Ernest Hemingway with the term a 'separate peace' . Hemingway, in several places, wrote of characters trying to escape from the larger society and build their own worlds, places separate from World War I.

For example, Frederick Henry says in A Farewelll to Arms:

I had the paper but I did not read it because I did not want to read about the war. I was going to forget the war. I had made a separate peace.

At this point, in chapter 34, feeling strange in his civilian clothes, Henry finds Catherine and two decide to go to Switzerland together. Henry also says:

If people bring so much courage to this world the world has to kill them to break them, so of course it kills them. The world breaks every one and afterward many are strong at the broken places. But those that will not break it kills. It kills the very good and the very gentle and very brave impartially.

Catherine is the very brave, good, and gentle person with whom Henry tries to establish a separate peace, away from the war. But because of the good kind of person she is, the "world" kills her.

Nick Adams comes home from World War I in Hemingway's “Big Two-Hearted River” to try to “make a separate peace” in nature:

The sun was just up over the hill. There was the meadow, the river and the swamp. There were birch trees…

The parallels with Knowles' novel are fairly direct. During the summer, while World War II is raging in Europe, Gene and Finny try to make a separate peace while in summer school at Devon, by forgetting about the war (though they can't entirely) and enjoying themselves. But the "world" intrudes in the guise of Gene's sudden (and false) conviction that Finny is only pretending to be his friend so that he can divert him from his studies and destroy him academically. This leads Gene to wobble the tree branch, which (literally) "breaks" Finny's leg, and in the end, kills him. Finny, like Catherine, is "very good and the very gentle and very brave" and so he, like her, is destroyed. (The strong allusive parallels between Catherine/Frederick, who are lovers, and Finny/Gene may be why some see A Separate Peace as a gay novel.)

Like Nick Adams, Gene has to come to terms with the private "war" he waged at Devon against Finny, as well as against his own inner demons. Gene states that because of what happened at Devon, he had already fought his war before he got to World War II. By the time he was fighting the larger war, he had no hatred of the enemy anymore, because he had left those emotions behind. He likens the emotions of competition and suspicion that caused him to "war" with Finny to the emotions that start larger wars like World War II. Years later, Gene is like Nick Adams, looking for peace at home. In Gene's case, he is returning to his former "home" at Devon and walking amid the river and trees, just as Nick returned to nature.

One could argue that a "separate peace" is Gene's self-acceptance following Finny's devastating, life-threatening injury which eventually results in his death. Following the tranquil summer session at Devon School, Gene becomes close friends with Finny but begins developing intense feelings of jealousy and envy. As a naive adolescent who lacks perspective and insight, Gene has extremely low self-esteem and misinterprets Finny's personality and actions. Gene's feelings of inadequacy motivate him to shake Finny from the branch of a tree, which results in Finny breaking his leg. Finny's injury prevents him from participating in the athletic events he once excelled in, and Gene struggles with feelings of guilt throughout the school year. Despite Finny's injury, Gene develops self-confidence and recognizes his own human nature. Following Finny's death, Gene accepts his inherent malevolence and makes peace with himself for breaking Finny's leg. At the end of the novel, Gene says,

"I never killed anybody and I never developed an intense level of hatred for the enemy. Because my war ended before I ever put on a uniform; I was on active duty all my time at school; I killed my enemy there" (Knowles, 110).

The enemy Gene is referencing is his own feelings of insecurity, fear, and low self-esteem, which are embodied by a spirit greater than that of Finny. Overall, Gene's "separate peace" refers to his feelings of acceptance that he has with himself as he matures into an insightful, understanding adult.

The title from John Knowles' A Separate Peace "is taken from Ernest Hemingway's novel A Farewell to Arms, in which the book's protagonist, Lt. Frederic Henry, declares his own private armistice during World War I" (from, A Separate Peace Themes, here on enotes).  I suggest that the title refers to the separate peace that each character in the novel tries to achieve and maintain.  Each character has his own method, some more effective than others, though none is infallible.  Gene says as much on the final page of the novel:

Other people [all but Finny] experienced this fearful shock somewhere, this sighting of the enemy, and so began an obsessive labor of defense, began to parry the menace they saw facing them by developing a particular frame of mind.

Quackenbush has his method, Leper has his, Brinker his, Finny and Gene theirs.  Today we would associate this with "defense mechanisms."  This, too, is a war story.  A war story about adolescents trying to maintain a separate peace not only amid the usual teenage angst and everything that causes it, but also against the haunting backdrop of a war.

I think "A Separate Peace" refers to childhood, specifically the teenager years. If you take a good look at the circumstances of the novel, Gene does indeed have the major internal conflict of all the characters. However, you need to look at the opposite of peace to help define what it is: war. Age 18 means eligibility for the war and all these boys anticipate it as if it will determine the direction of their life... when they arrive at that senior year.

Prior to their senior year, and even a little bit during this senior year, the boys find ways to remain children or teenagers: blitzball, snowball fights, and drinking hard cider.

I also think this is a symbolic peace. We enjoy as children the least responsibility our lives will hold until age 18. After that point, our life is a war of struggling to pay bills, maintain relationships, and maintain a positive work life.

A "separate peace" refers to the peace that Gene must make within himself. It's not about a peace that's reached after a war, but the real struggle that is within the hearts of the characters. In his last encounter with Finny, Gene gets some peace of mind by understanding Finny's nonviolent nature. It isn't until he's older, after he's matured and understands the meaning of his relationship with Finny, that Gene can finally achieve total peace within himself and accept Finny's death without guilt. He understands the duality of man's nature, the good and the evil parts of man. He realizes fear and evil caused him to behave the way he did, and he's able to finally forgive himself because he sees that war took away his innocence, leaving him full of hate. He understands now that "wars were made instead by something ignorant in the human heart."