In the Near Eastern Muslim world, the powerful Zeggid Dynasty controlled a unified Syria and was in conflict with the Fatimid Dynasty that was entrenched in Egypt. In 1183, the Syrian ruler Nur ad-Din's sent his trusted general Shirkuh to Egypt, his nephew Saladin was in the entourage. Shirkuh camped outside Jerusalem and his army was attacked in 1164 by a combined Muslim-Christian army, a coalition between the Egypt sultan, Shawar snd King Amalric I of Jerusalem. Nur ad-Din responded with a successful attack against Antioch in which he massacred and beheaded Christian soldiers and captured several leaders including Raynald of Châtillon, Prince of Antioch. Amalric and Shirkuh forced Nir ad-Din back to Alexandria but Amalric broke his alliance with Shawar and attacked Egypt. Nir ad-Din responded to Shawar's plea for help and within a short time, the Zeggid Dynasty had control of Egypt. Nir ad-Din executed Shawar for his alliance with the Christian King of Jerusalem, and appointed Shirkuh Vizier of Egypt. Nur ad-Din died unexpectedly in 1174 leaving his kingdom to his 11 year old son. However, the leadership of the crusade against the Christians went to Saladin who became Vizer of both Syria and Egypt and the founder of the Ayyubid dynasty.

Coincidentally, Almaric also died in 1174 and his son became Baldwin IV, King Jerusalem at the age of 13. Baldwin IV proved to be an excellent and courageous young man. Afflicted with leprosy, he nonetheless led his armies into battle and with the help of Raynald of Châtillon defeated Saladin at the Montgisard in 1177 when only 16 years old. Raynald was a renegade, attacking Muslim caravans and indulging in piracy at sea. His raids on Mecca made him the most hated crusader to Saladin and the Muslims. In 1184 Queen Sybilla, sister of Baldwin IV, crowned her husband Guy of Lusignan and together they ruled the Kingdom of Jerusalem. Raynald refused Guys's request to release captured Muslim traders and this latest outrage gave Saladin the reason to activate huge army against the Christians in Palestine.

An uneasy truce reconciled the two feuding Frankish leaders, Guy of Lusignan and Raynald of Chatillon, after a small Muslim force killed the embassy sent to mediate between the two rulers.  The crusader army set out from Acre with 1200 knights, 1200 light calvary, perhaps 10,000 foot soldiers, cross bowmen from the Italian fleet (Genoese) and hired mercenaries. The True Cross was carried by the Bishop of Acre and the preliminaries to the Battle of Hattin had begun. The strategy, tactics and political implications of this battle are important and have been published in detail in The Battle of Hattin Revisited

Saladin drew the Franks out from fortifications by leading a siege of Raymond's fort at Tiberius. He breached the walls and trapped Raymond's wife Eschiva in the citadel. Guy took the bait and moved his army out from Sephoria. Raymond led the vanguard but the Crusader armies moved very slowly as Saladin continually harassed them. In the afternoon, Guy of Lusignan decided to continue with the Frankish army towards Tiberius and Saladin was able to cut off his retreat and source of water at the Springs of Turan.

On a torrid plateau, cut off from water by Saladin's strategy which was to delay battle until the heat became oppressive, the Frankish army was forced to a standstill and had to make camp. Saladin set fire to the desert scrub bushes so as to cover the Crusader's camp with smoke, then volley after volley of arrows were released. Raymond and Guy advised Gerard advised Guy to attack as his army could not move forward, and several crusader knights defected with intelligence to Saladin. The often mentioned Crusaders charge for the water springs at Hattin was more likely an attempt to attack Saladin and his personal guards. Nonetheless, most of the Frankish infantry deserted. Repeated charges by their mounted knights did not help the Crusader position. Raymond of Tripoli escaped with Saracen help, his exact motives and events remain unclear. Saladin captured Guy's tent and the Bishop of Acre had been killed. Saladin won the Battle of Hattin on July 4, 1187 and the True Cross was taken. As an equal and a king, Saladin refused to execute Guy of Lusignan but he personally beheaded his arch enemy, 60 year old Raynald of Chatillon. Perhaps less than 3,000 Crusaders survived the Battle of Hattin from an initial army of 15,000 infantry, 1200 mounted knights and others. Saladin's army consisted of 20,000 infantry and 10,000 cavalry and there is no accurate figure for their casualties.