Neither DiveSetSourcePalette nor DiveSetDestinationPalette will set the physical palette. If your application needs to set the physical palette (that is, all 256 entries), it must do so as a full-screen (maximized) application. No WM_REALIZEPALETTE message will be sent to other applications, and no redraw is done.
If DiveSetDestinationPalette is not called and the display resolution is LUT8, then the current physical palette will be used. If DiveSetDestinationPalette is not called and the display resolution is not LUT8, then the OS/2 default palette will be used.
Most applications will notify DIVE of a physical palette change when a WM_REALIZEPALETTE message comes in on the message queue. You need not query the palette in this scenario, as a call to DiveSetDestinationPalette( hDiveInst, 0, 256, 0 ) will query the physical palette for the application.