The short version
Jerusalem had been in Latin hands since 1099. On 4 July 1187, a Muslim army led by Saladin destroyed the main field army of the Kingdom of Jerusalem near Hattin in Galilee. The city itself surrendered on 2 October 1187. The date and the sequence are well established; the reasons are more debated, and the explanation below presents the main arguments in a cautious way.
A kingdom with a weak center
By the 1170s the kingdom faced a more unified opponent. Saladin, who had taken power in Egypt, gradually extended his control to Damascus and much of Syria, which meant the Latin states were now bordered by one large power rather than several competing ones.
At the same time, the kingdom’s own leadership was fragile. King Baldwin IV came to the throne as a teenager and suffered from leprosy, which limited his ability to rule, though he is often credited with surprising military successes. Because he had no children, the question of who would succeed him dominated court politics. When Baldwin IV died in 1185, his young nephew Baldwin V was crowned, but the boy died in 1186.
The succession dispute
The crown then went to Sibylla, Baldwin IV’s sister, and her husband Guy of Lusignan. Not everyone accepted this. Raymond III of Tripoli, who had served as regent for the child king, was among those who opposed Guy and who had his own claims to influence. The nobles divided into factions, sometimes described as a court party (many of them recent arrivals from Europe) and a party of the established families. Historians warn against taking those labels too literally, since individual loyalties shifted, but there is general agreement that the quarrel left the kingdom divided at a critical time.
Raymond reached a separate truce with Saladin, and for a short time the situation seemed to calm. Then Raynald of Chatillon, a lord in Transjordan who was known for his aggressive behavior, attacked a Muslim caravan despite a truce. Sources differ on the exact details, but the event gave Saladin a reason to move against the kingdom, and he gathered a large force.
The road to Hattin
In the summer of 1187 Saladin besieged Tiberias, where Raymond’s wife was sheltering. King Guy gathered the kingdom’s army, including contingents from the military orders, notably the Knights Templar. The council of war debated whether to march to relieve Tiberias or to wait at a well-supplied position. Accounts, mostly written later, say that Raymond urged caution while others pressed for action, and Guy chose to advance.
The army marched across dry, hot ground with little water. By evening it was harassed and exhausted, and the next day, 4 July, it was surrounded. Much of the infantry broke away, the knights were cut off and the army collapsed. Many leaders, including Guy and Raynald, were captured. Raynald was executed. The relic believed to be a piece of the True Cross, which had been brought along as a rallying symbol, was taken. The full story of the Battle of Hattin is covered separately, but its importance here is that the kingdom had staked nearly all its mobile force on a single day and lost it.
The loss of Jerusalem
With the field army gone, castles and towns had few defenders. Saladin took Acre, Jaffa, Beirut and many other places over the next weeks and months, often by negotiation. Jerusalem was besieged in the fall. Its defenders, led by Balian of Ibelin, were few and the city was crowded with refugees. After a short siege the city agreed to surrender, with ransoms set for the inhabitants. Many were freed or ransomed, though not all could pay, and Latin sources and Muslim sources differ in their accounts of how it was handled. In contrast to the 1099 conquest, there was no general massacre.
Tyre, under Conrad of Montferrat, held out, and this proved crucial for what came next.
What followed
News of the fall led to the Third Crusade, launched by Pope Gregory VIII’s call and joined by the rulers of England, France and the Holy Roman Empire, although Emperor Frederick Barbarossa died on the way in 1190. The crusaders besieged Acre for about two years until it fell in 1191. Richard the Lionheart then fought Saladin along the coast, and a truce in 1192 gave the Latins a strip of coastline from Tyre to Jaffa while Jerusalem remained in Muslim hands, with pilgrims allowed access.
Jerusalem briefly came back. In 1229 Emperor Frederick II negotiated a treaty with the Egyptian sultan that returned the city, with some restrictions, but it was not sustainable. In 1244 forces allied to Egypt took it again, and it stayed under Muslim rule for centuries. The kingdom survived on the coast, with Acre as its capital, until 1291.
Why it happened
Most historians give weight to several things at once: the unification of Muslim territories under Saladin, the succession crisis, and the decision to risk the entire army at Hattin. Whether a more cautious strategy could have saved Jerusalem for long is an open question, since the kingdom depended on reinforcements that were not always available.