Dally worries that Johnny will end up in jail and develop a harsh exterior similar to his own, something he doesn't want to happen. Dally doesn't want Johnny to confessing himself in since he has already given him a lot of assistance, and he doesn't want that assistance to go to waste.
He also doesn't want Johnny to go to jail because he is familiar with how it feels. Dally doesn't want Johnny to give himself in because he has been to jail before and is aware of confessing difficult and frightening it can be there. Johnny is adamant because he was defending himself by striking back out of self-defense.
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