While Neto tells Jesse that he's "never heard anyone say those things," this doesn't mean he doesn't believe Jesse is wrong. In fact, he does believe deep down Jesse is right. At the end of the excerpt he starts to question whether or not he wants to be associated with a group that would make racist remarks. He says "Could he represent a school that would let it happen?" This shows that he believes the remarks are being made which causes the overall conflict because now he has to decide what to do.
