"then all the people found in it": including Canaanites within it.
(Even Canaanites, whom you are otherwise commanded to destroy) "shall be tribute to you and they shall serve you": If they said: We accept tribute but not servitude; servitude, but not tribute, they are not heeded — They must accept both.
"But if it does not make peace with you, and it makes war with you": Scripture apprises you that if it does not make peace with you (and you let it be), in the end it will make war with you.
"then you shall lay siege to it" — even to reduce it by famine, thirst, or plague.