Austro-Italian ironclad arms race
Austria's defeat in the Seven Weeks War forced Austria to determine a new set of foreign and domestic policies for the future, as Austria's interests since the days of the Holy Roman Empire had primarily been found in Italy and Germany. The Empire thus reformed itself into the Austria-Hungarian Empire following the adoption of the Austro-Hungarian Compromise of 1867 (German: "Ausgleich"), which re-established the sovereignty of the Kingdom of Hungary and placed Hungarians within the Empire on an equal footing with Austrians. Under the "Ausgleich", Emperor Franz Joseph I would be crowned as King of Hungary, while a separate parliament at Pest with powers to enact laws for the lands of the Holy Crown of Hungary would be established.
Wilhelm von Tegetthoff
Tegetthoff was appointed commander of the Austrian battle fleet on 9 May 1866, shortly before the Seven Weeks' War against Italy. Although the Italian fleet was larger and more powerful, Tegetthoff decided to engage it after a successful reconnaissance of the Italian base of Ancona on 27 June 1866. With their army suffering defeats against the Austrians during the first week of the war from 20 to 27 June 1866, the Italians sought a victory over the Austrian navy by sending their fleet against the Austrian naval base at Lissa, off the coast of Dalmatia near Spàlato (Split) on 16 July 1866. Encountering the Italian fleet early on the morning of 20 July 1866, Tegetthoff sailed straight for the center of the Italian fleet, hoping to ram the ships to make up for his own fleet's lack of firepower ("Rammstosstaktik"). The smoke from the Italian ships made visibility very poor, however, and the Austrians missed the Italian fleet completely. Swinging around, Tegetthoff again charged, this time setting two Italian armored ships on fire and damaging several more.