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.
Austro-Hungarian Armed Forces
Prussia established its domination over other German states by its victory over Austria in the Seven Weeks' War in 1866. The critical battle was waged at Königgrätz (Hradec Králové in the present-day Czech Republic). The Austrians armed with muzzle-loading rifles sustained 20,000 casualties and lost 20,000 prisoners. The battle overshadowed Austria's victories over Prussia's Italian allies at Custoza and in the naval Battle of Lissa (Vis) off the Dalmatian coast in which a smaller Austrian fleet of ironclads overcame the Italians by ramming them. Following the end of the Seven Weeks' War, Austria experienced fifty years of peace until World War I broke out in 1914.