They could also adjust the regulations for cargo trains to make mixing freight and passenger trains better.
For example, by limiting the maximum length of a freight train.
Then relatively minor subsidies (e.g. additional passing loops) could be used to improve reliability.
Or, they could let the market decide. The current system seems to work for most people.
Which Europe are you talking about? Europe is a collection of independent counties and what you just mention is all wrong.
Most of the European railway companies have been privatized and there are companies that run the rail network and companies that run the train. Subsidies are not a thing in many of the European countries
If you look at the UK for example, the physical network is publicly owned and maintained by National Rail, whilst the ToCs are (currently) mostly private. That said the ToCs are also going to switch to publicly owned over the next few years.
So if the US government would wanted to build out cross country passenger rail they would either have to build new tracks, or use eminent domain to take back control of the existing tracks. Both options would be very expensive and wildly unpopular.