Neither side is naive. Both Apple and the FBI are taking extreme positions. There is a lot of room in the middle for Apple to comply with the court order, and the FBI to get what it needs without compromising all privacy features.
Apple's position really isn't extreme. To the best of my knowledge, what the government is asking Apple to do is genuinely unprecedented.
I don't understand what you mean when you say that there's "a lot of room in the middle." Mobile device management and endpoint security was literally my job for 10 years, so perhaps I have a significantly different perspective on this than you do.
The only way this phone can be unlocked, unless someone manages to find a backdoor in the installed software, is for Apple to produce a new version of iOS that bypasses all of the security features of the device,
use their official Apple secret keys to digitally sign the software as authentic iPhone software, then
hand it over to the FBI to install on this iPhone.
Let me repeat in slightly different wording:
the only way for Apple to comply is to create, sign, and hand to the federal government a version of iOS that disables all device security. To the best of my knowledge, there is no effective way to create this software and prevent it from being able to be used on other iPhones.
The federal government is literally telling Apple to create a universal iPhone backdoor. I'm not sure where the "middle ground" could be here. If you have knowledge or understanding of the situation that I don't, and you have some idea of what "middle ground" could make everyone happy here, please share it with me. I'd genuinely love to know.