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Faramir was really his favorite all along, although Denethor would never have admitted that to a living soul. Their minds and souls were very much akin as highly insigtful & intelligent Numenoreans, whereas Boromir and Denethor had nothing in common--
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In my opinion, that's exactly why Denethor would favour Boromir. We tend to despise in others the things we dislike about ourselves. Denethor seemed to me to wish he had the physical prowress of Boromir and his active disposition, while disliking the 'weakness' he projected onto Faramir.
As for who would make a better leader, I believe Tolkien wrote Faramir's character as a foil to Boromir's rashness. He embodies the greatness of Gondor and its history without the impetuousness his older brother displays. He is written to be a good leader of men, even in the way he is able to accept that his own authority has limits.