Embedding was possible with the original iTerm but I believe it no
longer works. I don't think it would be hard to bring back, though. I
presume you can link a library in? What interfaces do you need
exposed?
I'd recommend beginning by writing a design document laying out what
you plan to do. I can help out because this is a complex job. Once
there's a good plan, fork github.com/gnachman/iTerm2 and start
hacking.