Be prepared for a wh-o-o-o-le lot of argument about that!
Indeed! Even after all these years (and after reading the story, the screenplay and watching the movie at least 25 times) I'm not sure how Jack died!
I'm surprised, M! I thought you were convinced, as I was, by Clancy's argument.
About the phrase "he knew it":
Put the emphasis on the other word
not "he KNEW it",
but "HE knew it".
Ennis "knew". For Ennis it was clear as day, he was certain. But this certainty is inside Ennis' head, it's not an absolute.
And even for Ennis, this certainty was only in that moment. Later on, "there was some open space between what he knew and what he tried to believe".
My computer is slow today and I have to get to work, so I only have time for a few quick comments on why I firmly believe Jack was killed the way Lureen said. My belief rests on ideas about how literature works and what the overarching theme of the story is, which may not be convincing to everybody. But here goes:
1) The scene of Jack getting murdered exists only in Ennis' mind. Ennis has been consumed by fear, almost his whole life, that the consequence for gay relationships is death by tire iron. So what are the chances that Jack would die in exactly that way?
2) Even if you interpret "tire iron" as a symbol representing murder by any means, the very fact that Ennis fully expects it makes him an unreliable source of information about it. So the fact that he "knew" it -- with no other evidence do go on outside of Jack's freak-accident, isolated death -- does not imply that we, the viewers/readers, should also "know" it. Ennis is not us.
3) We already know that Ennis has a somewhat exaggerated fear of the way people on the pavement would respond if they knew about Jack and Ennis. The Rich and Earl episode was horrific and emotionally scarring for Ennis, but others -- Aguirre, Alma, the bartender, the guys around the pool table, the Twists -- may be homophobic, but they do not react as extremely as Ennis might expect them to. (He didn't see the bartender and pool players, but we do; they may or may not be contemptuous -- even that's not entirely clear, and could be a result of still further paranoia! In any case, they're not violent.)
4) That indicates that a lot of the crippling effects of societal homophobia exist not just in real life (see treatment of Earl and Rich), but in the heads of the people whose lives are constrained by it. Societal homophobia not only damages lives, in other words (by keeping people who love each other apart), but it actually reaches in and damages souls, like Ennis', by making them afraid to be true to themselves.
5) All of this makes more sense from a literary standpoint, because it's a more powerful and interesting theme than, "Ennis always expected a gay man to be murdered, so he avoided a committed relationship, and sure enough then Jack was murdered. The end." Indeed, that would prove Ennis was smart all along to avoid committing to Jack. I don't think that's the point we're supposed to take from BBM.
6) Even "Ennis always expected a gay man to be murdered, so he avoided a committed relationship, and sure enough then Jack
might have been murdered, though we'll never know for sure" strikes me as a less interesting narrative than "societal homophobia screwed up Ennis' life by permanently afflicting him with internalized homophobia."
There are a few counterarguments, including the scene with the mechanics that was filmed but not included (seen in trailer), which suggests that Ang Lee interprets the death as intentionally ambiguous and decided the mechanics made it less so. Also, if Annie Proulx said so in an interview, then maybe she does, too (unless she was being coy).
Thanks much to ClancyPants of IMDb, who presented that interpretation after reportedly watching and reading BBM hundreds if not thousands of times, and convinced me, a former "we're not supposed to know"ist.