We examined whether second‐ and fifth‐graders could display differentiated social information processing (SIP) about known peers varying in affective ties. Children's response evaluation and decision (RED) and goal importance ratings were obtained for nine ambiguous provocations involving their best friends, neutral peers, and enemies (three stories for each relationship). For each story, RED was assessed for hostile, competent and passive responses to provocation, and the importance of four social goals was rated. Both second‐ and fifth‐graders displayed RED that depended on both the type of relationship they had with the provocateur and on the type of response (hostile, competent or passive). Children's social goals were affected by their relationship with the provocateur. Younger children's failure to display sensitivity to situational cues in previous studies is likely due to the cognitive demands of reasoning about hypothetical characters rather than an insensitivity to situational cues, per se.