They were close but I would say in 2002 Nas had the momentum suddenly. He was getting calls again on remixes (J Lo, Jagged Edge, Brandy etc) The whole Murder Inc thing where they were the hot chart group wanted to work with him etc, MTV was nominating his videos, Made You Look was charting on fukking TRL lol. and I think that year was the peak of the Nas> Jay convo. He was the winner of the battle so it kinda felt like he was gonna have the juice, bare him in mind hes still considered a mainstream platinum rapper in this time.
2002 to me for Jay was like Drake in 2018, hes still out there and the big artist but you could sense a shift cause while the albums were selling the acclaim was a little less. I just think Nas kinda rebelled against wanting the throne be it cause his mom passed away or whatever. That Summer Jam in 02 was the city ready to coronate him and we saw what he went with.
As for Jay retiring, I think it was smart marketing to take calculated break. It kinda was design to gain both momentum back from people who may have jumped to Nas but also to kinda get some attention off 50's year (very smart of him to tour with him that year). Taking a break can be a tricky thing but it gives you time to regroup (Drake should probably be doing the same now)