When Nana brought Owen to the hospital to visit us and meet Zoe, it was clear he definitely understood. As soon as he saw Zoe in her bassinet he said, "it's baby Zoe!" Then we gave him an etch-a-sketch as a present for being a big brother and that was pretty much the end of his interest in Zoe.

Before the end of the night he did manage to "pat her gently" a few times. Surprisingly, her crying actually piqued his interest, and he came over to help Mike rock the bassinet to calm her down. Mercifully, it worked, and he beamed with something that looked a lot like brotherly love.
Since coming home he still hasn't shown much interest, but what interest he has shown has been positive. He really doesn't like it when she cries - "Don't want Zoe to be sad again!" he yells - but he does occasionally ask about her if she's not in plain sight and he smiles whenever anyone says her name. He was a little afraid of the boo-boo on her belly button, but then who can blame him? And though he doesn't want to interact with her much, he has also shown almost no signs of jealousy. All in all, we're counting it as a big win.
