Hank perceiving Walt's twisted love for his surrogate son through Jesse's hysterical confession comes from the script rather any plausible analysis or deductive process. The strongest piece of evidence, Walt's vehicular homicide, is trumped by the way Jesse was an absolutely essential ally against Fring.
The writes have gone out of their way to show us that Walt cares about Jesse -- in a twisted way, but "cares" for him nonetheless. So it isn't just something Hank has mistakenly perceived. It is real, at least according to what we have seen presented on screen.
and I just figured out Jesse's play. He'll do the one thing no one expects him to do. He'll go back in the meth business. Todd, his uncle, & Lydia will jump at the opportunity to have him back in lieu of Heisenberg himself, and so will Hank & the DEA. Take down Heisenberg's whole network. Send them all to prison, including Saul's gang. That's how you get to the top of the food chain
But how is Jesse's going back into the meth business, alone, going to result in any tangible evidence against Walt, who is essentially out of the meth business? Also, how would it "take down Hisenberg's whole network" and "send them all to prison"?