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.
Otto von Bismarck
The war lasted seven weeks; Germans called it a "Blitzkrieg" ("lightning war"), a term also used in 1939. Austria had a seemingly powerful army that was allied with most of the north German and all of the south German states. Nevertheless, Prussia won the decisive Battle of Königgrätz. The King and his generals wanted to push onward, conquer Bohemia and march to Vienna, but Bismarck, worried that Prussian military luck might change or that France might intervene on Austria's side, enlisted the help of the Crown Prince, who had opposed the war but had commanded one of the Prussian armies at Königgrätz, to dissuade his father after stormy meetings. Bismarck insisted on a "soft peace" with no annexations and no victory parades, so as to be able to quickly restore friendly relations with Austria.