Pashut peshat in these pesukim is that the dead don't know anything; and furthermore, they haven't any care whatsoever of the goings-on in this world. They have no more portion, and so their love, hatred, and envy, is long ago perished.
The Rashbam takes this literally as referring to the dead:
Yeshayu du Trani:
ה. כי החיים יודעים שימותו: כלומר: לבני אדם שמחים ומשתעשעים,
והמתים אחר שמתו אינם יודעים ואינם מרגישים מאומה,
ואין להם עוד שכר, כי נשכח זכרם לגמרי.
And so too Rashi:
The Targum translates the chayim as tzadikim and the meitim as the reshaim, in accordance with Rabbi Chiya in the gemara:
Rav Saadia Gaon understands that there is no kesher of the deceased to olam hazeh anymore.
The analysis of the setama degemara is a bit difficult to understand, but maybe in light of the full context of the pasuk, we can understand what it means by Rabbi Yonatan retracting. Or maybe not.
The gemara, from 18b-19a:
R. Hiyya and R. Jonathan were once walking about in a cemetery, and the blue fringe of R. Jonathan was trailing on the ground. Said R. Hiyya to him: Lift it up, so that they [the dead] should not say: Tomorrow they are coming to join us and now they are insulting us! He said to him: Do they know so much? Is it not written, But the dead know not anything?19 He replied to him: If you have read once, you have not repeated; if you have repeated, you have not gone over a third time; if you have gone over a third time, you have not had it explained to you. For the living know that they shall die:20 these are the righteous who in their death are called living as it says. And Benaiah the son of Jehoiada, the son of a living21 man from Kabzeel, who had done mighty deeds, he smote the two altar-hearths of Moab; he went down and also slew a lion in the midst of a pit in the time of snow.22 'The son of a living man': are all other people then the sons of dead men? Rather 'the son of a living man' means that even in his death he was called living. 'From Kabzeel, who had done mighty deeds': this indicates that he gathered [kibbez] numerous workers for the Torah. 'He smote two altar-hearths of Moab'; this indicates that he did not leave his like either in the first Temple or in the second Temple.1 'He went down and also slew a lion in the midst of a pit in the time of snow': some say that this indicates that he broke blocks of ice and went down and bathed;2 others say that he went through the Sifra of the School of Rab3 on a winter's day. 'But the dead know nothing': These are the wicked who in their lifetime are called dead, as it says. And thou, O wicked one, that art slain, the prince of Israel.4 Or if you prefer. I can derive it from here: At the mouth of two witnesses shall the dead be put to death.5 He is still alive! What it means is, he is already counted as dead.Thus, Rabbi Chiya thinks that Rashi, Rashbam, etc., do not know how to learn! Rashi certainly knows this gemara. But there is a difference between peshat in a pasuk and the meaning read into it on a derash level. Chazal initially wished to conceal Kohelet. Shabbat 30b:
They similarly wished to conceal sefer Yechezkel, but derasha allowed them to be retained. Shabbat 13b:Rab Judah son of R. Samuel b. Shilath said in Rab's name: The Sages wished to hide the Book of Ecclesiastes,8 because its words are self-contradictory; yet why did they not hide it? Because its beginning is religious teaching9 and its end is religious teaching. Its beginning is religious teaching, as it is written, What profit hath man of all his labour wherein he laboureth under the sun?10 And the School of R. Jannai commented: Under the sun he has none, but he has it [sc. profit] before the sun.11 The end thereof is religious teaching, as it is written, Let us hear the conclusion of the matter, fear God, and keep his commandments: for this is the whole of man.12 What is meant by, 'for this is the whole of man'? — Said R. Eleazar, The entire world was created only for the sake of this [type of] man. Simeon b. 'Azzai-others state, Simeon b. Zoma-said: The entire world was created only to be a companion to this man.And how are its words self-contradictory? — It is written, anger is better than play;13 but it is written, I said of laughter, It is to be praised.14 It is written, Then I commended joy;15 but it is written, and of joy [I said] What doeth it?16 There is no difficulty: 'anger is better than laughter': the anger which the Holy One, blessed be He, displays to the righteous in this world is better than the laughter which the Holy One, blessed be He, laughs with the wicked in this world.17 'And I said of laughter, it is to be praised': that refers to the laughter which the Holy One, blessed be He, laughs with the righteous in the world to come. 'Then I commended joy': this refers to the joy of a precept.18 'And of joy [I said], what doeth it': this refers to joy [which is] not in connection with a precept.19 This teaches you that the Divine Presence rests [upon] man] neither through gloom,20 nor through sloth, nor through frivolity, nor through levity, nor through talk, nor through idle chatter,21 save through a matter of joy in connection with a precept, as it is said, But now bring me a minstrel. And it came to pass, when the minstrel played, that the hand of the Lord came upon him.22
Rab Judah said in Rab's name: In truth, that man, Hananiah son of Hezekiah by name, is to be remembered for blessing:16 but for him, the Book of Ezekiel would have been hidden,17 for its words contradicted the Torah.18 What did he do? Three hundred barrels of oil were taken up to him and he sat in an upper chamber and reconciled19 them.At any rate, it seems that Rabbi Yonasan's position was that the dead do not know anything, and indeed, from the next verse, they do not care about anything pertaining to this world.
Now, on Berachot 18b-19a:
R. Jonathan also retracted his opinion. For R. Samuel b. Nahmani said in the name of R. Jonathan: Whence do we know that the dead converse with one another? Because it says: And the Lord said unto him: This is the land which I swore unto Abraham, unto Isaac, and unto Jacob, saying.28 What is the meaning of 'saying'?29 The Holy One, blessed be He, said to Moses: Say to Abraham, Isaac and Jacob: The oath which I swore to you I have already carried out for your descendants.
Now if you maintain that the dead do not know, what would be the use of his telling them? — You infer then that they do know. In that case, why should he need to tell them? — So that they might be grateful to Moses.I simply do not understand what the gemara is saying with this. How in the world is this a proof that Rabbi Yonasan retracted? They don't automatically know what is going on, so they will not be cognizant of Rabbi Yonasan's tzitzis dragging over the graves. That does not mean that he does not hold that the dead cannot converse with each other. The avos did not know, and so Hashem told Moshe to relate this to them, so that they will now know and be grateful. There seems to be no retraction here at all!
At the very least, though, we see that the avos would care about what happens to their children, and that, contrary to a literal reading of Kohelet, they would be grateful to Moshe for his role. (Or, even if you don't want to say to Moshe, they would be grateful to Hashem for His fulfilled promise.)
I still don't understand the give and take of the setama degemara, even after seeing the Maharsha. What do you mean "what would be the use of his telling them?" The use would be that they would believe him and now know! My best guess is an assumption that Moshe's informing them would not be sufficient, either because (a) they have no way of checking, or (b) they cannot be in a state of knowledge. I am still deeply unsatisfied with this and must leave it as a tzarich iyun.