In the marketplace, a Frenchman holding a passport confers with a Moroccan merchant who tells him to speak to Signor Ferrari, describing Ferrari as the center of Casablanca's black market trade. Cut to the interior of the Blue Parrot (Signor Ferrari's club). Rick speaks to Ferrari, who wants to help Rick sell the Letters of Transit. Ferrari will take on all the risk for a small cut of what is sure to be a very hefty profit. Rick has not yet fully admitted to possessing the letters, but does tell Ferrari that he has left Rick's in order to give Renault and Major Strasser a chance to ransack the place. Ferrari keeps trying to make a deal with Rick, who becomes distracted by something he sees outside the window. We cut to Rick's POV to see Ilsa in the linen bazaar.
As Rick is exiting the Blue Parrot, Laszlo walks in. Knowing full well why Laszlo is there, Rick tells his romantic rival where to find Signor Ferrari. Rick keeps moving quickly out of frame. He approaches Ilsa who is fingering a delicate lace tablecloth, much to the delight of an eager merchant. Upon seeing Rick, the merchant tries to offer her a "friend of Rick" discount, but she is clearly not interested in either the friend or the discount. Ilsa is cold towards Rick. She reveals that she came to the cafe the night before to tell Rick why she left him in Paris, but upon seeing the hatred in his eyes, she has decided not to. She claims to be leaving Casablanca soon, and hopes that they can both cherish their memories of Paris, where they fell in love without knowing much about each other. Rick asks her to come see him, but she drops a bomb on him instead: Laszlo is Ilsa's husband, and they were married even when she was in Paris.
Cut back inside the Blue Parrot, where Ilsa and Laszlo are sitting with Signor Ferrari. The Italian says that getting an exit visa for Laszlo would be impossible because he is so high profile, but perhaps he will be able to get a single visa for Ilsa. Ilsa refuses the idea of leaving her husband behind, but Laszlo pressures her to go. Ilsa reminds Laszlo that he has stayed in many dangerous situations to remain by her side, and there is no way she will leave without him. The couple refuses Ferrari's offer, but Ferrari then does something purely charitable, even surprising himself. Ferrari tells Laszlo and Ilsa that their only other option would be to acquire Ugarte's two Letters of Transit, which are most likely with Rick.
Back inside Rick's Café Americain, the pickpocket is at work again, warning another unsuspecting man about the vultures in Casablanca while stealing his wallet. Rick is drinking heavily, a fact that both Carl and Renault comment on. Renault sits with Rick and asks him point-blank if he has the Letters of Transit, even though the raid of the cafe did not turn up any evidence of them. In response, Rick asks Renault if he is Pro-Vichy or Free France. Fully accepting the political implications of their situation, Renault laughs and changes the subject.
Then, Yvonne (who is French) enters with a German officer. Renault and Rick comment on her move to the dark side. A French officer voices his disapproval of this union and, as a result, Yvonne's German companion picks a fight with him. Rick pulls the two men apart and tells them to lay off politics or leave his saloon. Meanwhile, Major Strasser feels that the altercation symbolizes the ineffectiveness of Renault and his Vichy comrades in rallying the people of Casablanca behind the Axis powers. He asks Renault which side he is on, and Renault once again declares that his motives are selfish rather than ideological so, for now, he is on the side of the Vichy. Major Strasser is also concerned about the French Provinces in Africa who are looking for a leader, like Laszlo, to rally behind and rise up against the Third Reich. He and Renault agree that Laszlo presents a threat to the Axis powers whether he stays or leaves Casablanca.
Meanwhile, Carl the waiter shares a drink with Mr. Leuchtag and Mrs. Leuchtag, an older German couple who have finally gotten their exit visas and are about to leave for America. The Leuchtags proclaim that they are only speaking English in preparation for their new lives in America, but their English is comically bad. This is a rare moment of levity and humor at the Germans' expense.
Another patron of the cafe is not having such good luck. Annina Brandel is a young Bulgarian newlywed who has appeared in several scenes around Casablanca, desperate to get visas for herself and her husband. Her husband is currently playing roulette in hopes of winning enough to pay for visas. (In the original screenplay, the Brandels had a much larger role but many of their scenes were cut out). She has come to speak to Rick to find out if Renault can be trusted. She doesn't say it explicitly (since Censors would have certainly taken issue) but it is clear that Annina engaged in an extramarital affair with Renault because he promised her exit visas in return. In a crisis of conscience, she explains to Rick (and herself) that she has only done this because she loves her husband and wants a better life for them. Rick says he doesn't understand because "no one has ever loved [him] that much." He tells Annina to go back to Bulgaria and gets up from the table in a huff.
Continuing this dramatic night at Rick's Café, Ilsa and Laszlo enter and ask for a table close to Sam so they can hear him play. Rick asks Sam to play "As Time Goes By" in a deliberate statement to Ilsa, showing her that the song does not mean anything to him anymore. He then proceeds to the back of the cafe where Emil the Croupier is holding court over the roulette game. A young man is in danger of losing his money, and Rick recognizes him as Annina Brandel's husband, Jan Brandel. Rick whispers in Jan's ear, telling him where to put his chips. Rick's eye contact with Emil shows that he is controlling the results of the game so that Jan will win all the money he needs, ensuring that he and Annina will be able to purchase the exit visas from Renault. A few people notice Rick's illegal but well-intentioned gesture, notably Renault, who accuses Rick of being overly sentimental. At this point, Laszlo asks to speak to Rick privately.
Upstairs, Laszlo sits in front of the window in a shaft of light, while Rick has his back to the camera. Laszlo tries to appeal to Rick's sentimental side, bringing up his history of fighting on the side of the underdogs in both Spain and Ethiopia. Rick, however, will not budge, regardless of the vast sums of money that Laszlo is offering him for the Letters of Transit. Laszlo does not understand Rick's stubbornness, and Rick tells him to ask Ilsa for an explanation. Rick and Laszlo emerge from the upstairs apartment, and there is a shot, over Rick's shoulder from a high angle, of the Germans collected around the piano singing "Die Wacht Um Rein". Renault rolls his eyes and Laszlo dashes downstairs.
Ilsa watches Laszlo go over to the house band and request them to play "The Marseillaise". The Band Leader looks to Rick for approval, and Rick nods slightly. Laszlo starts singing the patriotic song and most of the cafe joins in, including Yvonne, who cries while she sings. The Germans are quickly outnumbered and sit down, while Ilsa proudly watches Laszlo lead the song until it is finished. Major Strasser has had enough and demands that Renault shut down the cafe immediately. Renault balks because the cafe is a place where he can indulge most of his hedonistic habits without reproach, but Major Strasser gives him no choice. In a slightly comic finish to the scene, Captain Renault tells Rick he is shutting down the cafe because of the illegal gambling at the same time that Emil the Croupier hands Renault his winnings from the rigged roulette game. As patrons scurry out of the cafe, Major Strasser confronts Ilsa and tells her that Laszlo will not be free in Casablanca, and his choices are to return to occupied France (where he will most certainly be sent to a concentration camp), or die. The threat ignites something in Ilsa, and her face hardens.
Back in their room, Laszlo peeks out the window and notices that they are still being watched. Ilsa implores him not to go to the Underground Resistance Meeting and that she is frightened for his life. Laszlo admits he is frightened too, but he has a duty to fulfill. He also tells Ilsa that Rick is refusing to sell the Letters of Transit, but doesn't understand why. Ilsa claims she doesn't know why either, even though she clearly does. Laszlo and Ilsa sit down on the bed together, lights dim, cloaked in shadows. Laszlo asks Ilsa if she was lonely in Paris while he was in the concentration camp. She says she was, but won't admit to her affair with Rick, even though Laszlo says he loves her despite her transgression. After Victor leaves for the meeting, Ilsa grabs her things and sneaks out of the room, determined.
In the beginning of this section, the marked contrast between Rick's Café Americain and The Blue Parrot is heightened. It becomes clear that with his possession of the illicit transit papers and Ilsa's return, the Black Market trade that Rick has worked so hard to stay away from is creeping into his life. While illegal activity certainly happens at Rick's, the degree to which it occurs is limited by what Rick allowed in order for his saloon to stay afloat. Meanwhile, Signor Ferrari uses his establishment, the Blue Parrot, as the headquarters for Casablanca's black market. As a contrast to the earlier scene when Rick rejects Signor Ferrari's offer to buy Rick's (including Sam), Rick is now coming to Signor Ferrari's willingly. Additionally, Rick has also tried to bury his past, which has served as a survival mechanism for him in Casablanca. This tactic, too, has begun to crumble with Ilsa's arrival. At this point in the film, all of Rick's carefully drawn boundaries, both physical and emotional, are becoming fluid.
Rick makes it a point to stay clear of politics, recalling at the beginning of the film that he refuses to drink with any of his patrons. However, he breaks his precedent by drinking with Ilsa and Laszlo, and the floodgates are now open. Politics are front and center at Rick's whether he likes it or not, and he is part of the reason why the environment in his saloon is becoming so heated. For example, the pickpocket made his first appearance in the film in an outdoor cafe. Now, he has found his way inside Rick's and is operating there. Rick's decision to help Annina Brandel represents Rick's own willing engagement in Casablanca's political stew. He engages in some minor anti-German rebellion in this section, by cheating to help Jan Brandel win at roulette, and then by allowing his band to support Laszlo as he sings The Marseillaise. Suddenly, the tenuous status quo that allowed Renault and Rick to co-exist has been upset, and as a result, Renault has to choose to side with Major Strasser and shut down Rick's Café. This is what happens when Rick "sticks his neck out" for others.
Rick's slow embodiment of his anti-German sentiments is in line with Warner Bros.'s own political stance during World War II. Before the attack on Pearl Harbor, many officials in the American government "favored keeping America on the sidelines. In September of 1941, a Senate subcommittee...subpoenaed Harry Warner for trying to 'influence public opinion in the direction of participation of the United States in the present European war'" (Warner Bros. 128). However, three months later, Japan bombed Pearl Harbor. Suddenly, Hollywood became a crucial public relations tool for FDR's government to rally public support for the war, and that is when the OWI was established. After American troops were actively engaged in overseas battle, studios required their film stars to sell war bonds in movie theaters. Aljean Harmetz estimates that as a result of this effort, movie patrons purchased approximately one billion dollars worth of bonds from the American government. Doing their duty, "Ingrid Bergman and Humphrey Bogart visited American troops in Alaska and Casablanca, respectively" (Warner Bros 136). Harry Warner foresaw the inevitable role of Hollywood in World War II long before any of his contemporaries did.
The theme of inevitability, meanwhile, is heightened in this section of Casablanca with the visual motif of stripes and bars. In this city, everyone is trapped in his or her own cage, and no amount of love or goodwill can change that. For example, in the scene where Rick and Ilsa meet in the market, she is wearing black and white stripes and there is latticed scaffolding behind Rick. Similarly, when Signor Ferrari tells Ilsa and Laszlo that there are no options for them to leave together, there are shadowy lines behind him as well. Yvonne, who incites a conflict between the French and German soldiers in Rick's, is also wearing stripes, and finally, when Ilsa and Laszlo retire to their bedroom, scared of what is to come, the shutters throw shadowy bars onto the white wall.
Finally, one thing that becomes clear in this section is that Ilsa and Rick could fall in love in Paris because they did not know anything about each other. The mystery kept their love pure and unburdened by politics and external conflict. Ilsa is aware of this when she and Rick meet in the market. She hopes to leave Casablanca so both she and Rick can revel in their happy memories and not suffer through the real impossibility of their love. Rick's blacklisted status and Ilsa's marriage to Laszlo were inconsequential during their affair, but once the Germans came into Paris, everything changed. This reality will develop over the last third of the film, leading to a dramatic but realistic conclusion, illustrating the all-encompassing power of war.