Silmarillion - Chapter 24 - Of the Voyage of Eärendil and the War of Wrath

[Mithadan]

Yes, it's off track and may be worthy of a separate thread. Nonetheless, I'll take a shot at this.

Wow. Pure speculation at this point. Gandalf is a Maia affiliated with Lorien, who drives dreams and perhaps insight and understanding of the peoples of Middle Earth. Gandalf is wise and insightful. He can inspire those in need of encouragement. In my view, Gandalf can distinguish between evil and good, not because he is capable of evil, but rather because he is capable of understanding it.

[Inziladun]

Originally Posted by Mithadan

In my view, Gandalf can distinguish between evil and good, not because he is capable of evil, but rather because he is capable of understanding it.

I agree, and that's in line with Gandalf's obvious ability to get inside Sauron's head, so to speak, and correctly anticipate his thoughts and actions in the War of the Ring.

I think it's worth noting that Sauron wasn't offered a second chance, after all. He himself approached Eönwë after Morgoth's defeat, and asked for pardon. After being told that he had to return to Valinor for a judgement from the Valar, he changed his mind. I do think though that he likely would have been granted a second chance, but under the close eyes of the Valar, no doubt.
Manwë probably would have been even more vigilant with Sauron, after having been fooled by Melkor.