If life hasn't treated you well, any offer that comes along has to be attractive, doesn't it? If you still have uncertainty, does that say something about the offer? If you are going to take action, is passive action enough? By exploring Cinderella's thought processes, On the Steps of the Palace becomes one of the most interesting lyrics in Act I.
Cinderella presents herself with a choice. She thinks that at her father's house, she is safe, out of sight and herself, but everything's wrong. Clearly she doesn't mean that everything's wrong, as she has just listed three things at home which make her comfortable. It is one of the greatest insights we get into this character that she views being out of sight as a plus. This clearly stems from negative attention. It explains why when she first experiences positive attention, she flees from it, literally.
In this song, Cindy has the opportunity to have the life of a princess. It is an opportunity that she has had presented to her, as she clearly seems incapable of seeking out opportunities for a better life. She refers to the castle as "where everything's right and you know that you'll never belong." I don't believe that it is purely a self-esteem issue, though that aspect is certainly in the mix, it would be easily defeated by the prince's efforts. Cinderella is clearly sensing that she would be unsuited to the life of a princess.
Everything she knows is telling Cinderella that her dreams are coming true. The baker's wife enforces this by telling her that every girl dreams of princes. Despite all this, at the start of this song, Cinderella is still looking for excuses for being attracted to the prince. He's very smart. He prepares. He has "more than just malice". This is grasping at straws to say the least. Cindy would clearly not look twice at the prince, were he not a prince. She is certainly not the type to go after him for this reason alone, but being pursued by him, her own opinion seems to hold little weight to her.
When she says, "How can you know who you are till you know what you want", Cindy demonstrates the she is not motivated by desires, but rather the need to avoid pain and difficulties. She finally determines that avoiding the collision will result in the path of least resistance, a strategy I know well. The problem with this life is it results in a comfortable life, but not a happy one, but these decisions are never black and white, and Cindy is left with two choices, neither of which are right for her. No wonder she resolves not to decide.
As so many of them do, Cindy declares that she has learned something on the steps of the palace, but has she really? She makes a passive decision, to leave the decision in somebody else's hands. She probably rationalizes it in her head by saying that she has forced the prince to prove his desire, but the princes desire was never in doubt so much as his suitability for Cinderella. When this backfires, the lesson she sees is that one needs to make their own decisions. She passes this advice onto Little Red Ridinghood, but is it sound? Well... that's a discussion about a totally different song.
Find this theme in other Sondheim songs: