Germany would have been better off making a reconciliation with Britain and adopting a non-aggressive stance, even if that means making colonial concessions and ending dreadnought production. Without German aggression Britain would have no excuse to declare war on her. Yes, this might mean ending the alliance with Austria-Hungary, but that was more a liability than an asset anyway, as the events of the war proved.
I don't think it would have required colonial concessions to placate Britain, but the naval issue if of course something else. I think few would disagree with you that German-British enmity could have been avoided, and that the Germans were foolish in not avoiding it. It would hardly have required ending the alliance with Austria-Hungary either.
Suppose Germany sided with Russia in 1914 and demanded that Austria leave Serbia alone? Italy would have joined Germany since she had claims on Austrian territory. What could the Austrians do then? Nothing but back down or be annihilated.
What could the French do, if they still wanted war with Germany? Back Austria against Germany and Russia, and forgo British support? I don't think so! Would Russia support France in this situation by doing a complete policy U-turn and back Austria against Serbia, and thus France against Germany? No, absolutely not, never.
But this is the summer of 1914, and while the solution you propose might have been a nifty move in a game of diplomacy, it ignores too many factors in the real world. Supposing Germany embark on that course of action:
Firstly, it presupposes a Germany that were above all preoccupied with avoiding that particular crisis (just one of many similar crisis of the period) escalating into a general war, more so than the other states. If this had been the German mentality, German policy in the preceding 20 years would have been very different from what it was. Secondly, the first - and only certain - consequence of it would have been the utter destruction of Germany's credibility as an ally, and would have left Germany in a position of complete isolation in Europe. Furthermore, it would not have voided the Franco-Russian alliance, nor would it have won Russia's friendship. The Russian position was one of choice between France and Germany, she could not have both. I somewhat doubt if Russia had chosen to abandon an alliance painstakingly built through decades, for no better reason than that Germany had unexpectedly and inexplicably completely abandoned her only reliable ally. It would almost certainly have warded off the Serbian crisis. But for a state to single-handedly ward off a crisis by completely forfeiting a major ally - that is something no European major power would ever do. Remember, crisis like this were fairly frequent occurences. If I had been an Imperial Foreign minister not blessed with the gift of precognition, and you had come to me suggesting such a scheme, I would have declared you mad. The basic architecture of the European balance simply could not have been reconstructed within a few weeks in the midst of a political crisis.