A case can be made for thinking that the dialog of Jesus ends at verse 12 and John continues on with commentary. John recorded his gospel in good school-boy Greek, a language that has few of the punctuation marks we take for granted. There are no quotation marks to indicate where Jesus stops talking. There is a noticeable shift in voice, as if John is trying to explain why he included this conversation. He also refers to Jesus as already in Heaven. We have no other record of Jesus talking quite like that. At any rate, the passage starting with verse 13 takes off on a different subject.
Nicodemus was a member of the Sanhedrin. He was familiar with rabbinical teaching. While not necessarily a Pharisee himself, he could not avoid knowing what the Pharisees taught. He surely knew that the Pharisees struggled with the healing miracles in conjunction with a teaching that rejected their intellectual approach and Talmudic traditions. This was the nature of his question to Jesus. It was obvious the miracles came from God, but after a couple of centuries of legalistic traditions and doctrine, there was a real conflict for the Pharisaical mind.
Jesus skips over a lot of verbiage in His replay. His answer assumes Nicodemus understands all of that stuff. The reason the Pharisees don’t understand how God could bless what Jesus taught with miracles is because they are materialistic in their orientation. The term Jesus uses is “fleshly.” He refers to something Nicodemus should have understood, a common reference to ritual ablution with a matching change of heart — born of water and of Spirit. This was a longstanding teaching among Pharisees, that someone could be moved to genuine repentance and seek a departure from past sinful living. This is what John the Baptist had been doing, and it was no mystery to anyone, as baptism was a very ancient ritual in Old Testament religion.
Indeed, Ezekiel 36:25-27 describes this very thing, and it is still recognized in Talmudic teaching today. This is what Jesus refers to and there was no good reason for Nicodemus to be obtuse about this. John translates this Aramaic conversation into Greek and distinctly uses the phrase “born from above” or “born from eternity.” It’s possible that in the Aramaic of that day, the actual word could be more ambiguous, perhaps even two different dialects, since Jesus had grown up in Galilee and scholars suggest this very word for “above” was used differently between Judea and Galilee. Either way, we can see that Nicodemus is missing the point.
So Nicodemus seized upon the reference to seeing the Kingdom of God and chased that around, forgetting the common reference to a radical change of heart. Would the Messiah demand some kind of second birth? Jesus explains His use of the terminology, demanding that Nicodemus pull back from literalism and think mystically. A kingdom rooted in Heaven cannot be built on fleshly nature. Such a kingdom would be rooted in the Spirit Realm, and requires a spiritual connection. So just being human isn’t enough, regardless of how educated and legally just. It requires a spiritual birth; all of that other stuff means nothing without it.
Then Jesus uses a parable about wind — you can tell when it’s present, but you can’t tell where it comes from or where it’s going. People born of the Spirit will have a source and a goal that is incomprehensible to people who don’t have that spiritual birth. Nicodemus is totally lost at that point, simply because it is just so foreign to his daily conversation as a member of the Sanhedrin. They were all talking about a regime change with the coming of Messiah, and tried to define all things they could know about the Messiah before He showed up, and this body of teaching was radically different from what Jesus was saying. What a disappointment it would be for everyone hoping to see the Romans and Herodian Dynasty driven out! Jesus was suggesting the Messiah would be a mystical king, focused on otherworldly concerns.
This is what Nicodemus means when he asks how such a thing could be. Jesus sounds like someone despairing for His nation. How could a member of the Sanhedrin, responsible for teaching the whole nation, have lost track of this critical moral truth? How could someone just forget two millennia of mysticism like that?
Jesus goes on to raise a critical issue. In the presence of hundreds of witnesses, the Spirit of God descended on Jesus at His baptism, and the voice of Jehovah thundered from Heaven His endorsement of Jesus’ ministry. Yet the Sanhedrin rejected the possibility that Jesus was commissioned by God. If they can’t handle concrete factual evidence on that scale, how are they going to react when Jesus reveals something about the Spirit Realm?
Eventually Nicodemus does catch on, publicly supporting Jesus at the trial before the Sanhedrin, and in funding the expensive spices for His burial.