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Often referred to as the Austro-Hungarian Empire or the Dual Monarchy, it was a constitutional monarchy and great power in Central Europe between 1867 and 1918. It was formed with the Austro-Hungarian Compromise of 1867 and was dissolved following its defeat in the First World War.

At its core was the dual monarchy which was a real union between the Austrian Empire and the Kingdom of Hungary. A third component of the union was the Kingdom of Croatia-Slavonia, an autonomous region under the Hungarian crown, which negotiated the Croatian–Hungarian Settlement in 1868. From 1878 Austria-Hungary jointly governed Bosnia-Hercegovina, which it annexed in 1908. Austria-Hungary was ruled by the House of Habsburg and constituted the last phase in the constitutional evolution of the Habsburg Monarchy. The union was established by the Austro-Hungarian Compromise on 30 March 1867 in the aftermath of the Austro-Prussian War. Following the 1867 reforms, the Austrian and Hungarian states were co-equal in power. The two states conducted common foreign, defense, and financial policies, but all other governmental faculties were divided among respective states.

Austria-Hungary was a multinational state and one of Europe's major powers at the time. Austria-Hungary was geographically the second-largest country in Europe after the Russian Empire, at 621,538 km2 and the third-most populous (after Russia and the German Empire). The Empire built up the fourth-largest machine building industry in the world, after the United States, Germany, and the United Kingdom. Austria-Hungary also became the world's third-largest manufacturer and exporter of electric home appliances, electric industrial appliances, and power generation apparatus for power plants, after the United States and the German Empire.

The Austro-Hungarian Compromise remained bitterly unpopular among the ethnic Hungarian voters because ethnic Hungarians did not vote for the ruling pro-compromise parties in the Hungarian parliamentary elections. Therefore, the political maintenance of the Austro-Hungarian Compromise (thus Austria-Hungary itself) was mostly a result of the popularity of the pro-compromise ruling Liberal Party among the ethnic minority voters in the Kingdom of Hungary.

The Austro-Hungarian Compromise of 1867 (called the Ausgleich in German and the Kiegyezés in Hungarian), which inaugurated the empire's dual structure in place of the former Austrian Empire (1804–1867), originated at a time when Austria had declined in strength and in power—both in the Italian Peninsula (as a result of the Second Italian War of Independence of 1859) and among the states of the German Confederation (it had been surpassed by Prussia as the dominant German-speaking power following the Austro-Prussian War of 1866). The Compromise re-established the full sovereignty of the Kingdom of Hungary, which was lost after the Hungarian Revolution of 1848.

Other factors in the constitutional changes were continued Hungarian dissatisfaction with rule from Vienna and increasing national consciousness on the part of other nationalities (or ethnicities) of the Austrian Empire. Hungarian dissatisfaction arose partly from Austria's suppression with Russian support of the Hungarian liberal revolution of 1848–49. However, dissatisfaction with Austrian rule had grown for many years within Hungary and had many other causes.

By the late 1850s, a large number of Hungarians who had supported the 1848–49 revolution were willing to accept the Habsburg monarchy. They argued that while Hungary had the right to full internal independence, under the Pragmatic Sanction of 1713, foreign affairs and defense were "common" to both Austria and Hungary.

After the Austrian defeat at Königgrätz, the government realized it needed to reconcile with Hungary to regain the status of a great power. The new foreign minister, Count Friedrich Ferdinand von Beust, wanted to conclude the stalemated negotiations with the Hungarians. To secure the monarchy, Emperor Franz Joseph began negotiations for a compromise with the Hungarian nobility, led by Ferenc Deák. On 20 March 1867, the re-established Hungarian parliament at Pest started to negotiate the new laws to be accepted on 30 March. However, Hungarian leaders received the Emperor's coronation as King of Hungary on 8 June as a necessity for the laws to be enacted within the lands of the Holy Crown of Hungary. On 28 July, Franz Joseph, in his new capacity as King of Hungary, approved and promulgated the new laws, which officially gave birth to the Dual Monarchy.

The realm's official name was Austro-Hungarian Monarchy, though in international relations Austria–Hungary was used. The Austrians also used the names k. u. k. Monarchie (English: k. u. k. monarchy) and Danubian Monarchy or Dual Monarchy and The Double Eagle, but none of these became widespread either in Hungary, or elsewhere.

The realm's full name used in the internal administration was The Kingdoms and Lands Represented in the Imperial Council and the Lands of the Holy Hungarian Crown of St. Stephen.

From 1867 onwards, the abbreviations heading the names of official institutions in Austria–Hungary reflected their responsibility:
- k. u. k. (kaiserlich und königlich or Imperial and Royal) was the label for institutions common to both parts of the Monarchy, e.g., the k.u.k. Kriegsmarine (War Fleet) and, during the war, the k.u.k. Armee (Army). The common army changed its label from k.k. to k.u.k. only in 1889 at the request of the Hungarian government.
- K. k. (kaiserlich-königlich) or Imperial-Royal was the term for institutions of Cisleithania (Austria); "royal" in this label referred to the Crown of Bohemia.
- K. u. (königlich-ungarisch) or M. k. (Magyar királyi) ("Royal Hungarian") referred to Transleithania, the lands of the Hungarian crown. In the Kingdom of Croatia and Slavonia, its autonomous institutions hold k. (kraljevski) ("Royal") as according to the Croatian–Hungarian Settlement, the only official language in Croatia and Slavonia was Croatian, and those institutions were "only" Croatian.

Following a decision of Franz Joseph I in 1868, the realm bore the official name Austro-Hungarian Monarchy/Realm in its international relations. It was often contracted to the Dual Monarchy in English or simply referred to as Austria.

The Compromise turned the Habsburg domains into a real union between the Austrian Empire ("Lands Represented in the Imperial Council", or Cisleithania) in the western and northern half and the Kingdom of Hungary ("Lands of the Crown of Saint Stephen", or Transleithania). in the eastern half. The two halves shared a common monarch, who ruled as Emperor of Austria over the western and northern half portion and as King of Hungary over the eastern portion. Foreign relations and defense were managed jointly, and the two countries also formed a customs union. All other state functions were to be handled separately by each of the two states.

Certain regions, such as Polish Galicia within Cisleithania and Croatia within Transleithania, enjoyed autonomous status, each with its own unique governmental structures (Polish Autonomy in Galicia and Croatian–Hungarian Settlement).

The division between Austria and Hungary was so marked that there was no common citizenship: one was either an Austrian citizen or a Hungarian citizen, never both. This also meant that there were always separate Austrian and Hungarian passports, never a common one. However, neither Austrian nor Hungarian passports were used in the Kingdom of Croatia-Slavonia. Instead, the Kingdom issued its own passports, which were written in Croatian and French, and displayed the coat of arms of the Kingdom of Croatia-Slavonia-Dalmatia on them. Croatia-Slavonia also had executive autonomy regarding naturalization and citizenship, defined as "Hungarian-Croatian citizenship" for the kingdom's citizens. It is not known what kind of passports were used in Bosnia-Herzegovina, which was under the control of both Austria and Hungary.

The Kingdom of Hungary had always maintained a separate parliament, the Diet of Hungary, even after the Austrian Empire was created in 1804. The administration and government of the Kingdom of Hungary (until 1848–49 Hungarian revolution) remained largely untouched by the government structure of the overarching Austrian Empire. Hungary's central government structures remained well separated from the Austrian imperial government. The country was governed by the Council of Lieutenancy of Hungary (the Gubernium) – located in Pressburg and later in Pest – and by the Hungarian Royal Court Chancellery in Vienna. The Hungarian government and Hungarian parliament were suspended after the Hungarian revolution of 1848 and were reinstated after the Austro-Hungarian Compromise in 1867.

Despite Austria and Hungary sharing a common currency, they were fiscally sovereign and independent entities. Since the beginnings of the personal union (from 1527), the government of the Kingdom of Hungary could preserve its separate and independent budget. After the revolution of 1848–1849, the Hungarian budget was amalgamated with the Austrian, and it was only after the Compromise of 1867 that Hungary obtained a separate budget. From 1527 (the creation of the monarchic personal union) to 1851, the Kingdom of Hungary maintained its own customs controls, which separated her from the other parts of the Habsburg-ruled territories. After 1867, the Austrian and Hungarian customs union agreement had to be renegotiated and stipulated every ten years. The agreements were renewed and signed by Vienna and Budapest at the end of every decade because both countries hoped to derive mutual economic benefit from the customs union. The Austrian Empire and the Kingdom of Hungary contracted their foreign commercial treaties independently of each other.

Vienna served as the Monarchy's primary capital. The Cisleithanian (Austrian) part contained about 57 percent of the total population and the larger share of its economic resources, compared to the Hungarian part.

The common government was led by a Ministerial Council, which had responsibility for the Common Army, navy, foreign policy, and the customs union.

Overlapping responsibilities between the joint ministries and the ministries of the two halves caused friction and inefficiencies. The armed forces suffered particularly from the overlap. Although the unified government determined the overall military direction, the Austrian and Hungarian governments each remained in charge of recruiting, supplies and training. Each government could have a strong influence over common governmental responsibilities. Each half of the Dual Monarchy proved quite prepared to disrupt common operations to advance its own interests.

Relations during the half-century after 1867 between the two parts of the dual monarchy featured repeated disputes over shared external tariff arrangements and over the financial contribution of each government to the common treasury. These matters were determined by the Austro-Hungarian Compromise of 1867, in which common expenditures were allocated 70% to Austria and 30% to Hungary. This division had to be renegotiated every ten years. There was political turmoil during the build-up to each renewal of the agreement. By 1907, the Hungarian share had risen to 36.4%. The disputes culminated in the early 1900s in a prolonged constitutional crisis. It was triggered by disagreement over which language to use for command in Hungarian army units and deepened by the advent to power in Budapest in April 1906 of a Hungarian nationalist coalition. Provisional renewals of the common arrangements occurred in October 1907 and in November 1917 on the basis of the status quo. The negotiations in 1917 ended with the dissolution of the Dual Monarchy.

Hungary and Austria maintained separate parliaments, each with its own prime minister: the Diet of Hungary (commonly known as the National Assembly) and the Imperial Council in Cisleithania. Each parliament had its own executive government, appointed by the monarch. In this sense, Austria–Hungary remained under an autocratic government, as the Emperor-King appointed both Austrian and Hungarian prime ministers along with their respective cabinets. This made both governments responsible to the Emperor-King, as neither half could have a government with a program contrary to the views of the Monarch. The Emperor-King could appoint non-parliamentary governments, for example, or keep a government that did not have a parliamentary majority in power in order to block the formation of another government which he did not approve of.

The Imperial Council was a bicameral body: the upper house was the House of Lords, and the lower house was the House of Deputies. Members of the House of Deputies were elected through a system of "curiae" which weighted representation in favor of the wealthy but was progressively reformed until universal manhood suffrage was introduced in 1906. To become law, bills had to be passed by both houses, signed by the government minister responsible and then granted royal assent by the Emperor.

The Diet of Hungary was also bicameral: the upper house was the House of Magnates, and the lower house was the House of Representatives. The "curia" system was also used to elect members of the House of Representatives. Franchise was very limited, with around 5% of men eligible to vote in 1874, rising to 8% at the beginning of World War I. The Hungarian parliament had the power to legislate on all matters concerning Hungary, but for Croatia-Slavonia only on matters which it shared with Hungary. Matters concerning Croatia-Slavonia alone fell to the Croatian-Slavonian Diet (commonly referred to as the Croatian Parliament). The Monarch had the right to veto any kind of Bill before it was presented to the National Assembly, the right to veto all legislation passed by the National Assembly, and the power to prorogue or dissolve the Assembly and call for new elections. In practice, these powers were rarely used.

The administrative system in the Austrian Empire consisted of three levels: the central State administration, the territories, and the local communal administration. The State administration comprised all affairs having relation to rights, duties, and interests "which are common to all territories"; all other administrative tasks were left to the territories. Finally, the communes had self-government within their own sphere.

The central authorities were known as the "Ministry". In 1867 the Ministerium consisted of seven ministries (Agriculture, Religion and Education, Finance, Interior, Justice, Commerce and Public Works, Defence). A Ministry of Railways was created in 1896, and the Ministry of Public Works was separated from Commerce in 1908. Ministries of Public Health and Social Welfare were established in 1917 to deal with issues arising from World War I. The ministries all had the title k.k. ("Imperial-Royal"), referring to the Imperial Crown of Austria and the Royal Crown of Bohemia.

Each of the seventeen territories had its own government, led by a Governor, appointed by the Emperor, to serve as his representative. Usually, a territory was equivalent to a Crown territory, but the immense variations in area of the Crown territories meant that there were some exceptions. Each territory had its own territorial assembly and executive. The territorial assembly and executive were led by the Landeshauptmann (i.e., territorial premier), appointed by the Emperor from the members of the territorial assembly. Many branches of the territorial administrations had great similarities with those of the State, so that their spheres of activity frequently overlapped and came into collision. This administrative "double track", as it was called, resulted largely from the origin of the State – for the most part through a voluntary union of countries that had a strong sense of their own individuality.

Below the territory was the district under a district-head, appointed by the State government. These district-heads united nearly all the administrative functions which were divided among the various ministries. Each district was divided into a number of municipalities, each with its own elected mayor. The nine statutory cities were autonomous units at the district-level.

The complexity of this system, particularly the overlap between State and territorial administration, led to moves for administrative reform. As early as 1904, premier Ernest von Koerber had declared that a complete change in the principles of administration would be essential if the machinery of State were to continue working. Richard von Bienerth's last act as Austrian premier in May 1911 was the appointment of a commission nominated by the Emperor to draw up a scheme of administrative reform. The imperial rescript did not present reforms as a matter of urgency or outline an overall philosophy for them. The continuous progress of society, it said, had made increased demands on the administration, that is to say, it was assumed that reform was required because of the changing times, not underlying problems with the administrative structure. The reform commission first occupied itself with reforms about which there was no controversy. In 1912 it published "Proposals for the training of State officials". The commission produced several further reports before its work was interrupted by the outbreak of World War I in 1914. It was not till March 1918 that the Seidler Government decided upon a program of national autonomy as a basis for administrative reform, which was, however, never carried into effect.

Habsburg subjects would from now on be able to take the State to court should it violate their fundamental rights. Since regular courts were still unable to overrule the bureaucracy, much less the legislature, these guarantees necessitated the creation of specialist courts that could:
- The Administrative Court, stipulated by the 1867 Basic Law on Judicial Power and implemented in 1876, had the power to review the legality of administrative acts, ensuring that the executive branch remained faithful to the principle of the rule of law.
- The Imperial Court, stipulated by the Basic Law on the Creation of an Imperial Court in 1867 and implemented in 1869, decided demarcation conflicts between courts and the bureaucracy, between its constituent territories, and between individual territories and the Empire. The Imperial Court also heard complaints of citizens who alleged to have been violated in their constitutional rights, although its powers were not cassatory: it could only vindicate the complainant by declaring the government to be in the wrong, not by actually voiding its wrongful decisions.
- The State Court held the Emperor's ministers accountable for political misconduct committed in office. Although the Emperor could not be taken to court, many of his decrees now depended on the relevant minister to countersign them. The double-pronged approach of making the Emperor dependent on his ministers and also making ministers criminally liable for bad outcomes would firstly enable, secondly motivate the ministers to put pressure on the monarch.

Judicial power was also independent of the executive in Hungary. After the Croatian–Hungarian Settlement of 1868, Croatia-Slavonia had its own independent judicial system (the Table of Seven was the court of last instance for Croatia-Slavonia with final civil and criminal jurisdiction).

The Empire relied increasingly on a cosmopolitan bureaucracy—in which Czechs played an important role—backed by loyal elements, including a large part of the German, Hungarian, Polish and Croat aristocracy.

The traditional aristocracy and land-based gentry class gradually faced increasingly wealthy men of the cities, who achieved wealth through trade and industrialization. The urban middle and upper class tended to seek their own power and supported progressive movements in the aftermath of revolutions in Europe.

As in the German Empire, the Austro-Hungarian Empire frequently used liberal economic policies and practices. From the 1860s, businessmen succeeded in industrializing parts of the Empire. Newly prosperous members of the bourgeoisie erected large homes and began to take prominent roles in urban life that rivaled the aristocracy's. In the early period, they encouraged the government to seek foreign investment to build up infrastructure, such as railroads, in aid of industrialization, transportation and communications, and development.

The influence of liberals in Austria, most of them ethnic Germans, weakened under the leadership of Count Eduard von Taaffe, the Austrian prime minister from 1879 to 1893. Taaffe used a coalition of clergy, conservatives and Slavic parties to weaken the liberals. In Bohemia, for example, he authorized Czech as an official language of the bureaucracy and school system, thus breaking the German speakers' monopoly on holding office. Such reforms encouraged other ethnic groups to push for greater autonomy as well. By playing nationalities off one another, the government ensured the monarchy's central role in holding together competing interest groups in an era of rapid change.

During the First World War, rising national sentiments and labour movements contributed to strikes, protests and civil unrest in the Empire. After the war, republican, national parties contributed to the disintegration and collapse of the monarchy in Austria and Hungary. Republics were established in Vienna and Budapest.

Legislation to help the working class emerged from Catholic conservatives. They turned to social reform by using Swiss and German models and intervening in private industry. In Germany, Chancellor Otto von Bismarck had used such policies to neutralize socialist promises. The Catholics studied the Swiss Factory Act of 1877, which limited working hours for everyone and provided maternity benefits, and German laws that insured workers against industrial risks inherent in the workplace. These served as the basis for Austria's 1885 Trade Code Amendment.

The Austro-Hungarian compromise and its supporters remained bitterly unpopular among the ethnic Hungarian voters, and the continuous electoral success of the pro-compromise Liberal Party frustrated many Hungarian voters. While the pro-compromise liberal parties were the most popular among ethnic minority voters, the Slovak, Serb, and Romanian minority parties remained unpopular among the ethnic minorities. The nationalist Hungarian parties, which were supported by the overwhelming majority of ethnic Hungarian voters, remained in the opposition, except from 1906 to 1910 where the nationalist Hungarian parties were able to form government.

In July 1849, the Hungarian Revolutionary Parliament proclaimed and enacted ethnic and minority rights (the next such laws were in Switzerland), but these were overturned after the Russian and Austrian armies crushed the Hungarian Revolution. After the Kingdom of Hungary reached the Compromise with the Habsburg Dynasty in 1867, one of the first acts of its restored Parliament was to pass a Law on Nationalities (Act Number XLIV of 1868). It was a liberal piece of legislation and offered extensive language and cultural rights. It did not recognize non-Hungarians to have rights to form states with any territorial autonomy.

Language was one of the most contentious issues in Austro-Hungarian politics. All governments faced difficult and divisive hurdles in deciding on the languages of government and of instruction. The minorities sought the widest opportunities for education in their own languages, as well as in the "dominant" languages—Hungarian and German. By the "Ordinance of 5 April 1897", the Austrian Prime Minister Count Kasimir Felix Badeni gave Czech equal standing with German in the internal government of Bohemia; this led to a crisis because of nationalist German agitation throughout the empire. The Crown dismissed Badeni.

The Austro-Hungarian Army was under the command of Archduke Albrecht, Duke of Teschen (1817–1895), an old-fashioned bureaucrat who opposed modernization. The military system of the Austro-Hungarian monarchy was similar in both states, and rested since 1868 upon the principle of the universal and personal obligation of the citizen to bear arms. Its military force was composed of the common army; the special armies, namely the Austrian Landwehr, and the Hungarian Honved, which were separate national institutions, and the Landsturm or levy-en masse. As stated above, the common army stood under the administration of the joint minister of war, while the special armies were under the administration of the respective ministries of national defence. The yearly contingent of recruits for the army was fixed by the military bills voted on by the Austrian and Hungarian parliaments and was generally determined on the basis of the population, according to the last census returns. It amounted in 1905 to 103,100 men, of which Austria furnished 59,211 men, and Hungary 43,889. Besides 10,000 men were annually allotted to the Austrian Landwehr, and 12,500 to the Hungarian Honved. The term of service was two years (three years in the cavalry) with the colours, seven or eight in the reserve and two in the Landwehr; in the case of men not drafted to the active army the same total period of service was spent in various special reserves.

The common minister of war was the head for the administration of all military affairs, except those of the Austrian Landwehr and of the Hungarian Honved, which were committed to the ministries for national defence of the two respective states. But the supreme command of the army was nominally vested in the monarch, who had the power to take all measures regarding the whole army. In practice, the emperor's nephew Archduke Albrecht was his chief military advisor and made the policy decisions.

The Austro-Hungarian navy was mainly a coast defence force, and also included a flotilla of monitors for the Danube. It was administered by the naval department of the ministry of war.

Russian Pan-Slavic organizations sent aid to the Balkan rebels and so pressured the tsar's government to declare war on the Ottoman Empire in 1877 in the name of protecting Orthodox Christians. Unable to mediate between the Ottoman Empire and Russia over the control of Serbia, Austria–Hungary declared neutrality when the conflict between the two powers escalated into a war. With help from Romania and Greece, Russia defeated the Ottomans and with the Treaty of San Stefano tried to create a large pro-Russian Bulgaria. This treaty sparked an international uproar that almost resulted in a general European war. Austria–Hungary and Britain feared that a large Bulgaria would become a Russian satellite that would enable the tsar to dominate the Balkans. British prime minister Benjamin Disraeli moved warships into position against Russia to halt the advance of Russian influence in the eastern Mediterranean so close to Britain's route through the Suez Canal.

The Congress of Berlin rolled back the Russian victory by partitioning the large Bulgarian state that Russia had carved out of Ottoman territory and denying any part of Bulgaria full independence from the Ottomans. Austria occupied Bosnia and Herzegovina as a way of gaining power in the Balkans. Serbia, Montenegro and Romania became fully independent. Nonetheless, the Balkans remained a site of political unrest with teeming ambition for independence and great power rivalries. At the Congress of Berlin in 1878 Gyula Andrássy (Minister of Foreign Affairs) managed to force Russia to retreat from further demands in the Balkans. As a result, Greater Bulgaria was broken up and Serbian independence was guaranteed. In that year, with Britain's support, Austria–Hungary stationed troops in Bosnia to prevent the Russians from expanding into nearby Serbia. In another measure to keep the Russians out of the Balkans, Austria–Hungary formed an alliance, the Mediterranean Entente, with Britain and Italy in 1887 and concluded mutual defence pacts with Germany in 1879 and Romania in 1883 against a possible Russian attack. Following the Congress of Berlin the European powers attempted to guarantee stability through a complex series of alliances and treaties.

Anxious about Balkan instability and Russian aggression, and to counter French interests in Europe, Austria–Hungary forged a defensive alliance with Germany in October 1879 and in May 1882. In October 1882 Italy joined this partnership in the Triple Alliance largely because of Italy's imperial rivalries with France. Tensions between Russia and Austria–Hungary remained high, so Bismarck replaced the League of the Three Emperors with the Reinsurance Treaty with Russia to keep the Habsburgs from recklessly starting a war over Pan-Slavism. The Sandžak-Raška / Novibazar region was under Austro-Hungarian occupation between 1878 and 1909, when it was returned to the Ottoman Empire, before being ultimately divided between kingdoms of Montenegro and Serbia.

On the heels of the Great Balkan Crisis, Austro-Hungarian forces occupied Bosnia and Herzegovina in August 1878 and the monarchy eventually annexed Bosnia and Herzegovina in October 1908 as a common holding of Cisleithania and Transleithania under the control of the Imperial & Royal finance ministry rather than attaching it to either territorial government. The annexation in 1908 led some in Vienna to contemplate combining Bosnia and Herzegovina with Croatia to form a third Slavic component of the monarchy. The deaths of Franz Joseph's brother, Maximilian (1867), and his only son, Rudolf, made the Emperor's nephew, Franz Ferdinand, heir to the throne. The Archduke was rumoured to have been an advocate for this trialism as a means to limit the power of the Hungarian aristocracy.

A proclamation issued on the occasion of its annexation to the Habsburg Monarchy in 1908 promised these lands constitutional institutions, which should secure to their inhabitants full civil rights and a share in the management of their own affairs by means of a local representative assembly. In performance of this promise a constitution was promulgated in 1910. This included a Territorial Statute with the setting up of a Territorial Diet, regulations for the election and procedure of the Diet, a law of associations, a law of public meetings, and a law dealing with the district councils. According to this statute Bosnia-Herzegovina formed a single administrative territory under the responsible direction and supervision of the Ministry of Finance of the Dual Monarchy in Vienna. The administration of the country, together with the carrying out of the laws, devolved upon the Territorial Government in Sarajevo, which was subordinate and responsible to the Common Ministry of Finance. The existing judicial and administrative authorities of the Territory retained their previous organization and functions. That statute introduced the modern rights and laws in Bosnia – Herzegovina, and it guaranteed generally the civil rights of the inhabitants of the Territory, namely citizenship, personal liberty, protection by the competent judicial authorities, liberty of creed and conscience, preservation of the national individuality and language, freedom of speech, freedom of learning and education, inviolability of the domicile, secrecy of posts and telegraphs, inviolability of property, the right of petition, and finally the right of holding meetings.

On 28 June 1914, Archduke Franz Ferdinand visited the Bosnian capital, Sarajevo. A group of six assassins (Cvjetko Popović, Gavrilo Princip, Muhamed Mehmedbašić, Nedeljko Čabrinović, Trifko Grabež, Vaso Čubrilović) from the nationalist group Mlada Bosna, supplied by the Black Hand, had gathered on the street where the Archduke's motorcade would pass. Čabrinović threw a grenade at the car, but missed. It injured some people nearby, and Franz Ferdinand's convoy could carry on. The other assassins failed to act as the cars drove past them quickly. About an hour later, when Franz Ferdinand was returning from a visit at the Sarajevo Hospital, the convoy took a wrong turn into a street where Gavrilo Princip by coincidence stood. With a pistol, Princip shot and killed Franz Ferdinand and his wife Sophie. The reaction among the Austrian people was mild, almost indifferent. As historian Z. A. B. Zeman later wrote, "the event almost failed to make any impression whatsoever. On Sunday and Monday [June 28 and 29], the crowds in Vienna listened to music and drank wine, as if nothing had happened."

The assassination excessively intensified the existing traditional religion-based ethnic hostilities in Bosnia. However, in Sarajevo itself, Austrian authorities encouraged violence against the Serb residents, which resulted in the Anti-Serb riots of Sarajevo, in which Catholic Croats and Bosnian Muslims killed two and damaged numerous Serb-owned buildings. Writer Ivo Andrić referred to the violence as the "Sarajevo frenzy of hate." Violent actions against ethnic Serbs were organized not only in Sarajevo but also in many other larger Austro-Hungarian cities in modern-day Croatia and Bosnia and Herzegovina. Austro-Hungarian authorities in Bosnia and Herzegovina imprisoned and extradited approximately 5,500 prominent Serbs, 700 to 2,200 of whom died in prison. 460 Serbs were sentenced to death and a predominantly Muslim special militia known as the Schutzkorps was established and carried out the persecution of Serbs.

While the empire's military spending had not even doubled since the 1878 Congress of Berlin, Germany's spending had risen fivefold, and the British, Russian, and French expenditures threefold. The empire had lost ethnic Italian areas to Piedmont because of nationalist movements that had swept through Italy, and many Austro-Hungarians perceived as imminent the threat of losing to Serbia the southern territories inhabited by Slavs. Serbia had recently gained considerable territory in the Second Balkan War of 1913, causing much distress in government circles in Vienna and Budapest. Former ambassador and foreign minister Count Alois Aehrenthal had assumed that any future war would be in the Balkan region.

Hungarian prime minister and political scientist István Tisza opposed the expansion of the monarchy in the Balkans because "the Dual Monarchy already had too many Slavs", which would further threaten the integrity of the Dual Monarchy. In March 1914, Tisza wrote a memorandum to Emperor Franz Joseph with a strongly apocalyptic, predictive and embittered tone. He used the hitherto unknown word "Weltkrieg" (meaning World War). "It is my firm conviction that Germany's two neighbors [Russia and France] are carefully proceeding with military preparations, but will not start the war so long as they have not attained a grouping of the Balkan states against us that confronts the monarchy with an attack from three sides and pins down the majority of our forces on our eastern and southern front."

On the day of the assassination of Archduke Franz Ferdinand, Tisza immediately traveled to Vienna where he met Minister of Foreign Affairs Count Leopold Berchtold and Army Commander Count Franz Conrad von Hötzendorf. They proposed to solve the dispute with arms, attacking Serbia. Tisza proposed to give the government of Serbia time to take a stand as to whether it was involved in the organisation of the murder and proposed a peaceful resolution, arguing that the international situation would settle soon. Returning to Budapest, he wrote to Emperor Franz Joseph saying he would not take any responsibility for the armed conflict because there was no proof that Serbia had plotted the assassination. Tisza opposed a war with Serbia, stating (correctly, as it turned out) that any war with the Serbs was bound to trigger a war with Russia and hence a general European war. He did not trust in the Italian alliance, due to the political aftermath of the Second Italian War of Independence. He thought that even a successful Austro-Hungarian war would be disastrous for the integrity of Kingdom of Hungary, where Hungary would be the next victim of Austrian politics. After a successful war against Serbia, Tisza foresaw a possible Austrian military attack against the Kingdom of Hungary, where the Austrians want to break up the territory of Hungary.

Some members of the government, such as Count Franz Conrad von Hötzendorf, had wanted to confront the resurgent Serbian nation for some years in a preventive war, but the Emperor, 84 years old and an enemy of all adventures, disapproved.

The foreign ministry of Austro-Hungarian Empire sent ambassador László Szőgyény to Potsdam, where he inquired about the standpoint of the German Emperor on 5 July. Szőgyény described what happened in a secret report to Vienna later that day:

I presented His Majesty [Wilhelm] with [Franz Joseph's] letter and the attached memorandum. The Kaiser read both papers quite carefully in my presence. First, His Majesty assured me that he had expected us to take firm action against Serbia, but he had to concede that, as a result of the conflicts facing [Franz Joseph], he needed to take into account a serious complication in Europe, which is why he did not wish to give any definite answer prior to consultations with the chancellor....

When, after our déjeuner, I once again emphasized the gravity of the situation, His Majesty authorized me to report to [Franz Joseph] that in this case, too, we could count on Germany's full support. As mentioned, he first had to consult with the Chancellor, but he did not have the slightest doubt that Herr von Bethmann Hollweg would fully agree with him, particularly with regard to action on our part against Serbia. In his [Wilhelm's] opinion, though, there was no need to wait patiently before taking action.

The Kaiser said that Russia's stance would always be a hostile one, but he had been prepared for this for many years, and even if war broke out between Austria–Hungary and Russia, we could rest assured that Germany would take our side, in line with its customary loyalty. According to the Kaiser, as things stood now, Russia was not at all ready for war. It would certainly have to think hard before making a call to arms.

But now the leaders of Austria–Hungary, especially General Count Leopold von Berchtold, backed by its ally Germany, decided to confront Serbia militarily before it could incite a revolt; using the assassination as an excuse, they presented a list of ten demands called the July Ultimatum, expecting Serbia would never accept. When Serbia accepted nine of the ten demands but only partially accepted the remaining one, Austria–Hungary declared war. Franz Joseph I finally followed the urgent counsel of his top advisers.

Over the course of July and August 1914, these events caused the start of World War I, as Russia mobilized in support of Serbia, setting off a series of counter-mobilizations. In support of his German ally, on Thursday, 6 August 1914, Emperor Franz Joseph signed the declaration of war on Russia. Italy initially remained neutral, although it had an alliance with Austria–Hungary. In 1915, it switched to the side of the Entente powers, hoping to gain territory from its former ally.

The Austro-Hungarian Empire played a relatively passive diplomatic role in the war, as it was increasingly dominated and controlled by Germany. The only goal was to punish Serbia and try to stop the ethnic breakup of the Empire, and it completely failed. Instead as the war went on the ethnic unity declined; the Allies encouraged breakaway demands from minorities and the Empire faced disintegration. Starting in late 1916 the new Emperor Karl removed the pro-German officials and opened peace overtures to the Allies, whereby the entire war could be ended by compromise, or perhaps Austria would make a separate peace from Germany. The main effort was vetoed by Italy, which had been promised large slices of Austria for joining the Allies in 1915. Austria was only willing to turn over the Trentino region but nothing more. Karl was seen as a defeatist, which weakened his standing at home and with both the Allies and Germany.

As the Imperial economy collapsed into severe hardship and even starvation, its multi-ethnic army lost its morale and was increasingly hard-pressed to hold its line. In the capital cities of Vienna and Budapest, the leftist and liberal movements and opposition parties strengthened and supported the separatism of ethnic minorities. As it became apparent that the Allies would win the war, nationalist movements, which had previously been calling for a greater degree of autonomy for their majority areas, started demanding full independence. The Emperor had lost much of his power to rule, as his realm disintegrated.

At the start of the war, the army was divided into two: the smaller part attacked Serbia while the larger part fought against the formidable Imperial Russian Army. The invasion of Serbia in 1914 was a disaster: by the end of the year, the Austro-Hungarian Army had taken no territory, but had lost 227,000 out of a total force of 450,000 men. However, in the autumn of 1915, the Serbian Army was defeated by the Central Powers, which led to the occupation of Serbia. Near the end of 1915, in a massive rescue operation involving more than 1,000 trips made by Italian, French and British steamers, 260,000 Serb surviving soldiers were transported to Brindisi and Corfu, where they waited for the chance of the victory of Allied Powers to reclaim their country. Corfu hosted the Serbian government in exile after the collapse of Serbia and served as a supply base to the Greek front. In April 1916 a large number of Serbian troops were transported in British and French naval vessels from Corfu to mainland Greece. The contingent numbering over 120,000 relieved a much smaller army at the Macedonian front and fought alongside British and French troops.

On the Eastern front, the war started out equally poorly. The Austro-Hungarian Army was defeated at the Battle of Lemberg and the great fortress city of Przemyśl was besieged and fell in March 1915. The Gorlice–Tarnów Offensive started as a minor German offensive to relieve the pressure of the Russian numerical superiority on the Austro-Hungarians, but the cooperation of the Central Powers resulted in huge Russian losses and the total collapse of the Russian lines and their 100 km long retreat into Russia. The Russian Third Army perished. In summer 1915, the Austro-Hungarian Army, under a unified command with the Germans, participated in the successful Gorlice–Tarnów Offensive. From June 1916, the Russians focused their attacks on the Austro-Hungarian army in the Brusilov Offensive, recognizing the numerical inferiority of the Austro-Hungarian army. By the end of September 1916, Austria–Hungary mobilized and concentrated new divisions, and the successful Russian advance was halted and slowly repelled; but the Austrian armies took heavy losses (about 1 million men) and never recovered. The Battle of Zborov (1917) was the first significant action of the Czechoslovak Legions, who fought for the independence of Czechoslovakia against the Austro-Hungarian army. However the huge losses in men and material inflicted on the Russians during the offensive contributed greatly to the revolutions of 1917, and it caused an economic crash in the Russian Empire.

In May 1915, Italy attacked Austria–Hungary. Italy was the only military opponent of Austria–Hungary which had a similar degree of industrialization and economic level; moreover, her army was numerous (≈1,000,000 men were immediately fielded), but suffered from poor leadership, training and organization. Chief of Staff Luigi Cadorna marched his army towards the Isonzo river, hoping to seize Ljubljana, and to eventually threaten Vienna. However, the Royal Italian Army were halted on the river, where four battles took place over five months (23 June – 2 December 1915). The fight was extremely bloody and exhausting for both the contenders.

On 15 May 1916, the Austrian Chief of Staff Conrad von Hötzendorf launched the Strafexpedition ("punitive expedition"): the Austrians broke through the opposing front and occupied the Asiago plateau. The Italians managed to resist and in a counteroffensive seized Gorizia on 9 August. Nonetheless, they had to stop on the Carso, a few kilometres away from the border. At this point, several months of indecisive trench warfare ensued (analogous to the Western front). As the Russian Empire collapsed as a result of the Bolshevik Revolution and Russians ended their involvement in the war, Germans and Austrians were able to move on the Western and Southern fronts much manpower from the erstwhile Eastern fighting.

On 24 October 1917, Austrians (now enjoying decisive German support) attacked at Caporetto using new infiltration tactics; although they advanced more than 100 km (62.14 mi) in the direction of Venice and gained considerable supplies, they were halted and could not cross the Piave river. Italy, although suffering massive casualties, recovered from the blow, and a coalition government under Vittorio Emanuele Orlando was formed. Italy also enjoyed support by the Entente powers: by 1918, large amounts of war materials and a few auxiliary American, British, and French divisions arrived in the Italian battle zone. Cadorna was replaced by General Armando Diaz; under his command, the Italians retook the initiative and won the decisive Battle of the Piave river (15–23 June 1918), in which some 60,000 Austrian and 43,000 Italian soldiers were killed. The multiethnic Austro-Hungarian Empire started to disintegrate, leaving its army alone on the battlefields. The final battle was at Vittorio Veneto; after 4 days of stiff resistance, Italian troops crossed the Piave River, and after losing 90,000 men the defeated Austrian troops retreated in disarray pursued by the Italians. The Italians captured 448,000 Austrian-Hungarian soldiers (about one-third of the imperial-royal army), 24 of whom were generals, 5,600 cannons and mortars, and 4,000 machine guns. The military breakdown also marked the start of the rebellion for the numerous ethnicities who made up the multiethnic Empire, as they refused to keep on fighting for a cause that now appeared senseless. These events marked the end of Austria–Hungary, which collapsed on 31 October 1918. The armistice was signed at Villa Giusti on 3 November.

On 27 August 1916, Romania declared war against Austria–Hungary. The Romanian Army crossed the borders of Eastern Hungary (Transylvania), and despite initial successes, by November 1916, the Central Powers formed by the Austro-Hungarian, German, Bulgarian, and Ottoman armies, had defeated the Romanian and Russian armies of the Entente Powers, and occupied the southern part of Romania (including Oltenia, Muntenia and Dobruja). Within 3 months of the war, the Central Powers came near Bucharest, the Romanian capital city. On 6 December, the Central Powers captured Bucharest, and part of the population moved to the unoccupied Romanian territory, in Moldavia, together with the Romanian government, royal court and public authorities, which relocated to Iași.

In 1917, after several defensive victories (managing to stop the German-Austro-Hungarian advance), with Russia's withdrawal from the war following the October Revolution, Romania was forced to drop out of the war.

Whereas the German army realized it needed close cooperation from the homefront, Habsburg officers saw themselves as entirely separate from the civilian world, and superior to it. When they occupied productive areas, such as southern Romania, they seized food stocks and other supplies for their own purposes and blocked any shipments intended for civilians back in the Austro-Hungarian Empire. The result was that the officers lived well, as the civilians began to starve. Vienna even transferred training units to Serbia and Poland for the sole purpose of feeding them. In all, the Army obtained about 15 percent of its cereal needs from occupied territories.

The Austro-Hungarian Empire then withdrew from all defeated countries. By 1918, the economic situation had deteriorated. Leftist and pacifist political movements organized strikes in factories, and uprisings in the army had become commonplace. During the Italian battles, the Czechoslovaks and Southern Slavs declared their independence. On 31 October Hungary ended the personal union with Austria, officially dissolving the Monarchy. At the last Italian offensive, the Austro-Hungarian Army took to the field without any food and munition supply and fought without any political supports for a de facto non-existent empire. On the end of the decisive joint Italian, British and French offensive at Vittorio Veneto, the disintegrated Austria–Hungary signed the Armistice of Villa Giusti on 3 November 1918.

The Austro-Hungarian Monarchy collapsed with dramatic speed in the autumn of 1918. In the capital cities of Vienna and Budapest, the leftist and liberal movements and politicians (the opposition parties) strengthened and supported the separatism of ethnic minorities. These leftist or left-liberal pro-Entente maverick parties opposed the monarchy as a form of government and considered themselves internationalist rather than patriotic. Eventually, the German defeat and the minor revolutions in Vienna and Budapest gave political power to the left/liberal political parties. As it became apparent that the Allied powers would win World War I, nationalist movements, which had previously been calling for a greater degree of autonomy for various areas, started pressing for full independence. The Emperor had lost much of his power to rule, as his realm disintegrated.

The Treaty of Saint-Germain-en-Laye (between the victors of World War I and Austria) and the Treaty of Trianon (between the victors and Hungary) regulated the new borders of Austria and Hungary, leaving both as small landlocked states. The Allies assumed without question that the minority nationalities wanted to leave Austria and Hungary, and also allowed them to annex significant blocks of German- and Hungarian-speaking territory. As a result, the Republic of Austria lost roughly 60% of the old Austrian Empire's territory. It also had to drop its plans for union with Germany, as it was not allowed to unite with Germany without League approval. The restored Kingdom of Hungary, which had replaced the republican government in 1920, lost roughly 72% of the pre-war territory of the Kingdom of Hungary.

Main Source Used: en.wikipedia.org/wiki/Austria-…

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Today reworked classic you all know and love. Just beware as it tends to collapse xD Enjoy

Often referred to as the Austro-Hungarian Empire or the Dual Monarchy, it was a constitutional monarchy and great power in Central Europe between 1867 and 1918. It was formed with the Austro-Hungarian Compromise of 1867 and was dissolved following its defeat in the First World War.

At its core was the dual monarchy which was a real union between the Austrian Empire and the Kingdom of Hungary. A third component of the union was the Kingdom of Croatia-Slavonia, an autonomous region under the Hungarian crown, which negotiated the Croatian–Hungarian Settlement in 1868. From 1878 Austria-Hungary jointly governed Bosnia-Hercegovina, which it annexed in 1908. Austria-Hungary was ruled by the House of Habsburg and constituted the last phase in the constitutional evolution of the Habsburg Monarchy. The union was established by the Austro-Hungarian Compromise on 30 March 1867 in the aftermath of the Austro-Prussian War. Following the 1867 reforms, the Austrian and Hungarian states were co-equal in power. The two states conducted common foreign, defense, and financial policies, but all other governmental faculties were divided among respective states.

Austria-Hungary was a multinational state and one of Europe's major powers at the time. Austria-Hungary was geographically the second-largest country in Europe after the Russian Empire, at 621,538 km2 and the third-most populous (after Russia and the German Empire). The Empire built up the fourth-largest machine building industry in the world, after the United States, Germany, and the United Kingdom. Austria-Hungary also became the world's third-largest manufacturer and exporter of electric home appliances, electric industrial appliances, and power generation apparatus for power plants, after the United States and the German Empire.

The Austro-Hungarian Compromise remained bitterly unpopular among the ethnic Hungarian voters because ethnic Hungarians did not vote for the ruling pro-compromise parties in the Hungarian parliamentary elections. Therefore, the political maintenance of the Austro-Hungarian Compromise (thus Austria-Hungary itself) was mostly a result of the popularity of the pro-compromise ruling Liberal Party among the ethnic minority voters in the Kingdom of Hungary.

The Austro-Hungarian Compromise of 1867 (called the Ausgleich in German and the Kiegyezés in Hungarian), which inaugurated the empire's dual structure in place of the former Austrian Empire (1804–1867), originated at a time when Austria had declined in strength and in power—both in the Italian Peninsula (as a result of the Second Italian War of Independence of 1859) and among the states of the German Confederation (it had been surpassed by Prussia as the dominant German-speaking power following the Austro-Prussian War of 1866). The Compromise re-established the full sovereignty of the Kingdom of Hungary, which was lost after the Hungarian Revolution of 1848.

Other factors in the constitutional changes were continued Hungarian dissatisfaction with rule from Vienna and increasing national consciousness on the part of other nationalities (or ethnicities) of the Austrian Empire. Hungarian dissatisfaction arose partly from Austria's suppression with Russian support of the Hungarian liberal revolution of 1848–49. However, dissatisfaction with Austrian rule had grown for many years within Hungary and had many other causes.

By the late 1850s, a large number of Hungarians who had supported the 1848–49 revolution were willing to accept the Habsburg monarchy. They argued that while Hungary had the right to full internal independence, under the Pragmatic Sanction of 1713, foreign affairs and defense were "common" to both Austria and Hungary.

After the Austrian defeat at Königgrätz, the government realized it needed to reconcile with Hungary to regain the status of a great power. The new foreign minister, Count Friedrich Ferdinand von Beust, wanted to conclude the stalemated negotiations with the Hungarians. To secure the monarchy, Emperor Franz Joseph began negotiations for a compromise with the Hungarian nobility, led by Ferenc Deák. On 20 March 1867, the re-established Hungarian parliament at Pest started to negotiate the new laws to be accepted on 30 March. However, Hungarian leaders received the Emperor's coronation as King of Hungary on 8 June as a necessity for the laws to be enacted within the lands of the Holy Crown of Hungary. On 28 July, Franz Joseph, in his new capacity as King of Hungary, approved and promulgated the new laws, which officially gave birth to the Dual Monarchy.

The realm's official name was Austro-Hungarian Monarchy, though in international relations Austria–Hungary was used. The Austrians also used the names k. u. k. Monarchie (English: k. u. k. monarchy) and Danubian Monarchy or Dual Monarchy and The Double Eagle, but none of these became widespread either in Hungary, or elsewhere.

The realm's full name used in the internal administration was The Kingdoms and Lands Represented in the Imperial Council and the Lands of the Holy Hungarian Crown of St. Stephen.

From 1867 onwards, the abbreviations heading the names of official institutions in Austria–Hungary reflected their responsibility:
- k. u. k. (kaiserlich und königlich or Imperial and Royal) was the label for institutions common to both parts of the Monarchy, e.g., the k.u.k. Kriegsmarine (War Fleet) and, during the war, the k.u.k. Armee (Army). The common army changed its label from k.k. to k.u.k. only in 1889 at the request of the Hungarian government.
- K. k. (kaiserlich-königlich) or Imperial-Royal was the term for institutions of Cisleithania (Austria); "royal" in this label referred to the Crown of Bohemia.
- K. u. (königlich-ungarisch) or M. k. (Magyar királyi) ("Royal Hungarian") referred to Transleithania, the lands of the Hungarian crown. In the Kingdom of Croatia and Slavonia, its autonomous institutions hold k. (kraljevski) ("Royal") as according to the Croatian–Hungarian Settlement, the only official language in Croatia and Slavonia was Croatian, and those institutions were "only" Croatian.

Following a decision of Franz Joseph I in 1868, the realm bore the official name Austro-Hungarian Monarchy/Realm in its international relations. It was often contracted to the Dual Monarchy in English or simply referred to as Austria.

The Compromise turned the Habsburg domains into a real union between the Austrian Empire ("Lands Represented in the Imperial Council", or Cisleithania) in the western and northern half and the Kingdom of Hungary ("Lands of the Crown of Saint Stephen", or Transleithania). in the eastern half. The two halves shared a common monarch, who ruled as Emperor of Austria over the western and northern half portion and as King of Hungary over the eastern portion. Foreign relations and defense were managed jointly, and the two countries also formed a customs union. All other state functions were to be handled separately by each of the two states.

Certain regions, such as Polish Galicia within Cisleithania and Croatia within Transleithania, enjoyed autonomous status, each with its own unique governmental structures (Polish Autonomy in Galicia and Croatian–Hungarian Settlement).

The division between Austria and Hungary was so marked that there was no common citizenship: one was either an Austrian citizen or a Hungarian citizen, never both. This also meant that there were always separate Austrian and Hungarian passports, never a common one. However, neither Austrian nor Hungarian passports were used in the Kingdom of Croatia-Slavonia. Instead, the Kingdom issued its own passports, which were written in Croatian and French, and displayed the coat of arms of the Kingdom of Croatia-Slavonia-Dalmatia on them. Croatia-Slavonia also had executive autonomy regarding naturalization and citizenship, defined as "Hungarian-Croatian citizenship" for the kingdom's citizens. It is not known what kind of passports were used in Bosnia-Herzegovina, which was under the control of both Austria and Hungary.

The Kingdom of Hungary had always maintained a separate parliament, the Diet of Hungary, even after the Austrian Empire was created in 1804. The administration and government of the Kingdom of Hungary (until 1848–49 Hungarian revolution) remained largely untouched by the government structure of the overarching Austrian Empire. Hungary's central government structures remained well separated from the Austrian imperial government. The country was governed by the Council of Lieutenancy of Hungary (the Gubernium) – located in Pressburg and later in Pest – and by the Hungarian Royal Court Chancellery in Vienna. The Hungarian government and Hungarian parliament were suspended after the Hungarian revolution of 1848 and were reinstated after the Austro-Hungarian Compromise in 1867.

Despite Austria and Hungary sharing a common currency, they were fiscally sovereign and independent entities. Since the beginnings of the personal union (from 1527), the government of the Kingdom of Hungary could preserve its separate and independent budget. After the revolution of 1848–1849, the Hungarian budget was amalgamated with the Austrian, and it was only after the Compromise of 1867 that Hungary obtained a separate budget. From 1527 (the creation of the monarchic personal union) to 1851, the Kingdom of Hungary maintained its own customs controls, which separated her from the other parts of the Habsburg-ruled territories. After 1867, the Austrian and Hungarian customs union agreement had to be renegotiated and stipulated every ten years. The agreements were renewed and signed by Vienna and Budapest at the end of every decade because both countries hoped to derive mutual economic benefit from the customs union. The Austrian Empire and the Kingdom of Hungary contracted their foreign commercial treaties independently of each other.

Vienna served as the Monarchy's primary capital. The Cisleithanian (Austrian) part contained about 57 percent of the total population and the larger share of its economic resources, compared to the Hungarian part.

The common government was led by a Ministerial Council, which had responsibility for the Common Army, navy, foreign policy, and the customs union.

Overlapping responsibilities between the joint ministries and the ministries of the two halves caused friction and inefficiencies. The armed forces suffered particularly from the overlap. Although the unified government determined the overall military direction, the Austrian and Hungarian governments each remained in charge of recruiting, supplies and training. Each government could have a strong influence over common governmental responsibilities. Each half of the Dual Monarchy proved quite prepared to disrupt common operations to advance its own interests.

Relations during the half-century after 1867 between the two parts of the dual monarchy featured repeated disputes over shared external tariff arrangements and over the financial contribution of each government to the common treasury. These matters were determined by the Austro-Hungarian Compromise of 1867, in which common expenditures were allocated 70% to Austria and 30% to Hungary. This division had to be renegotiated every ten years. There was political turmoil during the build-up to each renewal of the agreement. By 1907, the Hungarian share had risen to 36.4%. The disputes culminated in the early 1900s in a prolonged constitutional crisis. It was triggered by disagreement over which language to use for command in Hungarian army units and deepened by the advent to power in Budapest in April 1906 of a Hungarian nationalist coalition. Provisional renewals of the common arrangements occurred in October 1907 and in November 1917 on the basis of the status quo. The negotiations in 1917 ended with the dissolution of the Dual Monarchy.

Hungary and Austria maintained separate parliaments, each with its own prime minister: the Diet of Hungary (commonly known as the National Assembly) and the Imperial Council in Cisleithania. Each parliament had its own executive government, appointed by the monarch. In this sense, Austria–Hungary remained under an autocratic government, as the Emperor-King appointed both Austrian and Hungarian prime ministers along with their respective cabinets. This made both governments responsible to the Emperor-King, as neither half could have a government with a program contrary to the views of the Monarch. The Emperor-King could appoint non-parliamentary governments, for example, or keep a government that did not have a parliamentary majority in power in order to block the formation of another government which he did not approve of.

The Imperial Council was a bicameral body: the upper house was the House of Lords, and the lower house was the House of Deputies. Members of the House of Deputies were elected through a system of "curiae" which weighted representation in favor of the wealthy but was progressively reformed until universal manhood suffrage was introduced in 1906. To become law, bills had to be passed by both houses, signed by the government minister responsible and then granted royal assent by the Emperor.

The Diet of Hungary was also bicameral: the upper house was the House of Magnates, and the lower house was the House of Representatives. The "curia" system was also used to elect members of the House of Representatives. Franchise was very limited, with around 5% of men eligible to vote in 1874, rising to 8% at the beginning of World War I. The Hungarian parliament had the power to legislate on all matters concerning Hungary, but for Croatia-Slavonia only on matters which it shared with Hungary. Matters concerning Croatia-Slavonia alone fell to the Croatian-Slavonian Diet (commonly referred to as the Croatian Parliament). The Monarch had the right to veto any kind of Bill before it was presented to the National Assembly, the right to veto all legislation passed by the National Assembly, and the power to prorogue or dissolve the Assembly and call for new elections. In practice, these powers were rarely used.

The administrative system in the Austrian Empire consisted of three levels: the central State administration, the territories, and the local communal administration. The State administration comprised all affairs having relation to rights, duties, and interests "which are common to all territories"; all other administrative tasks were left to the territories. Finally, the communes had self-government within their own sphere.

The central authorities were known as the "Ministry". In 1867 the Ministerium consisted of seven ministries (Agriculture, Religion and Education, Finance, Interior, Justice, Commerce and Public Works, Defence). A Ministry of Railways was created in 1896, and the Ministry of Public Works was separated from Commerce in 1908. Ministries of Public Health and Social Welfare were established in 1917 to deal with issues arising from World War I. The ministries all had the title k.k. ("Imperial-Royal"), referring to the Imperial Crown of Austria and the Royal Crown of Bohemia.

Each of the seventeen territories had its own government, led by a Governor, appointed by the Emperor, to serve as his representative. Usually, a territory was equivalent to a Crown territory, but the immense variations in area of the Crown territories meant that there were some exceptions. Each territory had its own territorial assembly and executive. The territorial assembly and executive were led by the Landeshauptmann (i.e., territorial premier), appointed by the Emperor from the members of the territorial assembly. Many branches of the territorial administrations had great similarities with those of the State, so that their spheres of activity frequently overlapped and came into collision. This administrative "double track", as it was called, resulted largely from the origin of the State – for the most part through a voluntary union of countries that had a strong sense of their own individuality.

Below the territory was the district under a district-head, appointed by the State government. These district-heads united nearly all the administrative functions which were divided among the various ministries. Each district was divided into a number of municipalities, each with its own elected mayor. The nine statutory cities were autonomous units at the district-level.

The complexity of this system, particularly the overlap between State and territorial administration, led to moves for administrative reform. As early as 1904, premier Ernest von Koerber had declared that a complete change in the principles of administration would be essential if the machinery of State were to continue working. Richard von Bienerth's last act as Austrian premier in May 1911 was the appointment of a commission nominated by the Emperor to draw up a scheme of administrative reform. The imperial rescript did not present reforms as a matter of urgency or outline an overall philosophy for them. The continuous progress of society, it said, had made increased demands on the administration, that is to say, it was assumed that reform was required because of the changing times, not underlying problems with the administrative structure. The reform commission first occupied itself with reforms about which there was no controversy. In 1912 it published "Proposals for the training of State officials". The commission produced several further reports before its work was interrupted by the outbreak of World War I in 1914. It was not till March 1918 that the Seidler Government decided upon a program of national autonomy as a basis for administrative reform, which was, however, never carried into effect.

Habsburg subjects would from now on be able to take the State to court should it violate their fundamental rights. Since regular courts were still unable to overrule the bureaucracy, much less the legislature, these guarantees necessitated the creation of specialist courts that could:
- The Administrative Court, stipulated by the 1867 Basic Law on Judicial Power and implemented in 1876, had the power to review the legality of administrative acts, ensuring that the executive branch remained faithful to the principle of the rule of law.
- The Imperial Court, stipulated by the Basic Law on the Creation of an Imperial Court in 1867 and implemented in 1869, decided demarcation conflicts between courts and the bureaucracy, between its constituent territories, and between individual territories and the Empire. The Imperial Court also heard complaints of citizens who alleged to have been violated in their constitutional rights, although its powers were not cassatory: it could only vindicate the complainant by declaring the government to be in the wrong, not by actually voiding its wrongful decisions.
- The State Court held the Emperor's ministers accountable for political misconduct committed in office. Although the Emperor could not be taken to court, many of his decrees now depended on the relevant minister to countersign them. The double-pronged approach of making the Emperor dependent on his ministers and also making ministers criminally liable for bad outcomes would firstly enable, secondly motivate the ministers to put pressure on the monarch.

Judicial power was also independent of the executive in Hungary. After the Croatian–Hungarian Settlement of 1868, Croatia-Slavonia had its own independent judicial system (the Table of Seven was the court of last instance for Croatia-Slavonia with final civil and criminal jurisdiction).

The Empire relied increasingly on a cosmopolitan bureaucracy—in which Czechs played an important role—backed by loyal elements, including a large part of the German, Hungarian, Polish and Croat aristocracy.

The traditional aristocracy and land-based gentry class gradually faced increasingly wealthy men of the cities, who achieved wealth through trade and industrialization. The urban middle and upper class tended to seek their own power and supported progressive movements in the aftermath of revolutions in Europe.

As in the German Empire, the Austro-Hungarian Empire frequently used liberal economic policies and practices. From the 1860s, businessmen succeeded in industrializing parts of the Empire. Newly prosperous members of the bourgeoisie erected large homes and began to take prominent roles in urban life that rivaled the aristocracy's. In the early period, they encouraged the government to seek foreign investment to build up infrastructure, such as railroads, in aid of industrialization, transportation and communications, and development.

The influence of liberals in Austria, most of them ethnic Germans, weakened under the leadership of Count Eduard von Taaffe, the Austrian prime minister from 1879 to 1893. Taaffe used a coalition of clergy, conservatives and Slavic parties to weaken the liberals. In Bohemia, for example, he authorized Czech as an official language of the bureaucracy and school system, thus breaking the German speakers' monopoly on holding office. Such reforms encouraged other ethnic groups to push for greater autonomy as well. By playing nationalities off one another, the government ensured the monarchy's central role in holding together competing interest groups in an era of rapid change.

During the First World War, rising national sentiments and labour movements contributed to strikes, protests and civil unrest in the Empire. After the war, republican, national parties contributed to the disintegration and collapse of the monarchy in Austria and Hungary. Republics were established in Vienna and Budapest.

Legislation to help the working class emerged from Catholic conservatives. They turned to social reform by using Swiss and German models and intervening in private industry. In Germany, Chancellor Otto von Bismarck had used such policies to neutralize socialist promises. The Catholics studied the Swiss Factory Act of 1877, which limited working hours for everyone and provided maternity benefits, and German laws that insured workers against industrial risks inherent in the workplace. These served as the basis for Austria's 1885 Trade Code Amendment.

The Austro-Hungarian compromise and its supporters remained bitterly unpopular among the ethnic Hungarian voters, and the continuous electoral success of the pro-compromise Liberal Party frustrated many Hungarian voters. While the pro-compromise liberal parties were the most popular among ethnic minority voters, the Slovak, Serb, and Romanian minority parties remained unpopular among the ethnic minorities. The nationalist Hungarian parties, which were supported by the overwhelming majority of ethnic Hungarian voters, remained in the opposition, except from 1906 to 1910 where the nationalist Hungarian parties were able to form government.

In July 1849, the Hungarian Revolutionary Parliament proclaimed and enacted ethnic and minority rights (the next such laws were in Switzerland), but these were overturned after the Russian and Austrian armies crushed the Hungarian Revolution. After the Kingdom of Hungary reached the Compromise with the Habsburg Dynasty in 1867, one of the first acts of its restored Parliament was to pass a Law on Nationalities (Act Number XLIV of 1868). It was a liberal piece of legislation and offered extensive language and cultural rights. It did not recognize non-Hungarians to have rights to form states with any territorial autonomy.

Language was one of the most contentious issues in Austro-Hungarian politics. All governments faced difficult and divisive hurdles in deciding on the languages of government and of instruction. The minorities sought the widest opportunities for education in their own languages, as well as in the "dominant" languages—Hungarian and German. By the "Ordinance of 5 April 1897", the Austrian Prime Minister Count Kasimir Felix Badeni gave Czech equal standing with German in the internal government of Bohemia; this led to a crisis because of nationalist German agitation throughout the empire. The Crown dismissed Badeni.

The Austro-Hungarian Army was under the command of Archduke Albrecht, Duke of Teschen (1817–1895), an old-fashioned bureaucrat who opposed modernization. The military system of the Austro-Hungarian monarchy was similar in both states, and rested since 1868 upon the principle of the universal and personal obligation of the citizen to bear arms. Its military force was composed of the common army; the special armies, namely the Austrian Landwehr, and the Hungarian Honved, which were separate national institutions, and the Landsturm or levy-en masse. As stated above, the common army stood under the administration of the joint minister of war, while the special armies were under the administration of the respective ministries of national defence. The yearly contingent of recruits for the army was fixed by the military bills voted on by the Austrian and Hungarian parliaments and was generally determined on the basis of the population, according to the last census returns. It amounted in 1905 to 103,100 men, of which Austria furnished 59,211 men, and Hungary 43,889. Besides 10,000 men were annually allotted to the Austrian Landwehr, and 12,500 to the Hungarian Honved. The term of service was two years (three years in the cavalry) with the colours, seven or eight in the reserve and two in the Landwehr; in the case of men not drafted to the active army the same total period of service was spent in various special reserves.

The common minister of war was the head for the administration of all military affairs, except those of the Austrian Landwehr and of the Hungarian Honved, which were committed to the ministries for national defence of the two respective states. But the supreme command of the army was nominally vested in the monarch, who had the power to take all measures regarding the whole army. In practice, the emperor's nephew Archduke Albrecht was his chief military advisor and made the policy decisions.

The Austro-Hungarian navy was mainly a coast defence force, and also included a flotilla of monitors for the Danube. It was administered by the naval department of the ministry of war.

Russian Pan-Slavic organizations sent aid to the Balkan rebels and so pressured the tsar's government to declare war on the Ottoman Empire in 1877 in the name of protecting Orthodox Christians. Unable to mediate between the Ottoman Empire and Russia over the control of Serbia, Austria–Hungary declared neutrality when the conflict between the two powers escalated into a war. With help from Romania and Greece, Russia defeated the Ottomans and with the Treaty of San Stefano tried to create a large pro-Russian Bulgaria. This treaty sparked an international uproar that almost resulted in a general European war. Austria–Hungary and Britain feared that a large Bulgaria would become a Russian satellite that would enable the tsar to dominate the Balkans. British prime minister Benjamin Disraeli moved warships into position against Russia to halt the advance of Russian influence in the eastern Mediterranean so close to Britain's route through the Suez Canal.

The Congress of Berlin rolled back the Russian victory by partitioning the large Bulgarian state that Russia had carved out of Ottoman territory and denying any part of Bulgaria full independence from the Ottomans. Austria occupied Bosnia and Herzegovina as a way of gaining power in the Balkans. Serbia, Montenegro and Romania became fully independent. Nonetheless, the Balkans remained a site of political unrest with teeming ambition for independence and great power rivalries. At the Congress of Berlin in 1878 Gyula Andrássy (Minister of Foreign Affairs) managed to force Russia to retreat from further demands in the Balkans. As a result, Greater Bulgaria was broken up and Serbian independence was guaranteed. In that year, with Britain's support, Austria–Hungary stationed troops in Bosnia to prevent the Russians from expanding into nearby Serbia. In another measure to keep the Russians out of the Balkans, Austria–Hungary formed an alliance, the Mediterranean Entente, with Britain and Italy in 1887 and concluded mutual defence pacts with Germany in 1879 and Romania in 1883 against a possible Russian attack. Following the Congress of Berlin the European powers attempted to guarantee stability through a complex series of alliances and treaties.

Anxious about Balkan instability and Russian aggression, and to counter French interests in Europe, Austria–Hungary forged a defensive alliance with Germany in October 1879 and in May 1882. In October 1882 Italy joined this partnership in the Triple Alliance largely because of Italy's imperial rivalries with France. Tensions between Russia and Austria–Hungary remained high, so Bismarck replaced the League of the Three Emperors with the Reinsurance Treaty with Russia to keep the Habsburgs from recklessly starting a war over Pan-Slavism. The Sandžak-Raška / Novibazar region was under Austro-Hungarian occupation between 1878 and 1909, when it was returned to the Ottoman Empire, before being ultimately divided between kingdoms of Montenegro and Serbia.

On the heels of the Great Balkan Crisis, Austro-Hungarian forces occupied Bosnia and Herzegovina in August 1878 and the monarchy eventually annexed Bosnia and Herzegovina in October 1908 as a common holding of Cisleithania and Transleithania under the control of the Imperial & Royal finance ministry rather than attaching it to either territorial government. The annexation in 1908 led some in Vienna to contemplate combining Bosnia and Herzegovina with Croatia to form a third Slavic component of the monarchy. The deaths of Franz Joseph's brother, Maximilian (1867), and his only son, Rudolf, made the Emperor's nephew, Franz Ferdinand, heir to the throne. The Archduke was rumoured to have been an advocate for this trialism as a means to limit the power of the Hungarian aristocracy.

A proclamation issued on the occasion of its annexation to the Habsburg Monarchy in 1908 promised these lands constitutional institutions, which should secure to their inhabitants full civil rights and a share in the management of their own affairs by means of a local representative assembly. In performance of this promise a constitution was promulgated in 1910. This included a Territorial Statute with the setting up of a Territorial Diet, regulations for the election and procedure of the Diet, a law of associations, a law of public meetings, and a law dealing with the district councils. According to this statute Bosnia-Herzegovina formed a single administrative territory under the responsible direction and supervision of the Ministry of Finance of the Dual Monarchy in Vienna. The administration of the country, together with the carrying out of the laws, devolved upon the Territorial Government in Sarajevo, which was subordinate and responsible to the Common Ministry of Finance. The existing judicial and administrative authorities of the Territory retained their previous organization and functions. That statute introduced the modern rights and laws in Bosnia – Herzegovina, and it guaranteed generally the civil rights of the inhabitants of the Territory, namely citizenship, personal liberty, protection by the competent judicial authorities, liberty of creed and conscience, preservation of the national individuality and language, freedom of speech, freedom of learning and education, inviolability of the domicile, secrecy of posts and telegraphs, inviolability of property, the right of petition, and finally the right of holding meetings.

On 28 June 1914, Archduke Franz Ferdinand visited the Bosnian capital, Sarajevo. A group of six assassins (Cvjetko Popović, Gavrilo Princip, Muhamed Mehmedbašić, Nedeljko Čabrinović, Trifko Grabež, Vaso Čubrilović) from the nationalist group Mlada Bosna, supplied by the Black Hand, had gathered on the street where the Archduke's motorcade would pass. Čabrinović threw a grenade at the car, but missed. It injured some people nearby, and Franz Ferdinand's convoy could carry on. The other assassins failed to act as the cars drove past them quickly. About an hour later, when Franz Ferdinand was returning from a visit at the Sarajevo Hospital, the convoy took a wrong turn into a street where Gavrilo Princip by coincidence stood. With a pistol, Princip shot and killed Franz Ferdinand and his wife Sophie. The reaction among the Austrian people was mild, almost indifferent. As historian Z. A. B. Zeman later wrote, "the event almost failed to make any impression whatsoever. On Sunday and Monday [June 28 and 29], the crowds in Vienna listened to music and drank wine, as if nothing had happened."

The assassination excessively intensified the existing traditional religion-based ethnic hostilities in Bosnia. However, in Sarajevo itself, Austrian authorities encouraged violence against the Serb residents, which resulted in the Anti-Serb riots of Sarajevo, in which Catholic Croats and Bosnian Muslims killed two and damaged numerous Serb-owned buildings. Writer Ivo Andrić referred to the violence as the "Sarajevo frenzy of hate." Violent actions against ethnic Serbs were organized not only in Sarajevo but also in many other larger Austro-Hungarian cities in modern-day Croatia and Bosnia and Herzegovina. Austro-Hungarian authorities in Bosnia and Herzegovina imprisoned and extradited approximately 5,500 prominent Serbs, 700 to 2,200 of whom died in prison. 460 Serbs were sentenced to death and a predominantly Muslim special militia known as the Schutzkorps was established and carried out the persecution of Serbs.

While the empire's military spending had not even doubled since the 1878 Congress of Berlin, Germany's spending had risen fivefold, and the British, Russian, and French expenditures threefold. The empire had lost ethnic Italian areas to Piedmont because of nationalist movements that had swept through Italy, and many Austro-Hungarians perceived as imminent the threat of losing to Serbia the southern territories inhabited by Slavs. Serbia had recently gained considerable territory in the Second Balkan War of 1913, causing much distress in government circles in Vienna and Budapest. Former ambassador and foreign minister Count Alois Aehrenthal had assumed that any future war would be in the Balkan region.

Hungarian prime minister and political scientist István Tisza opposed the expansion of the monarchy in the Balkans because "the Dual Monarchy already had too many Slavs", which would further threaten the integrity of the Dual Monarchy. In March 1914, Tisza wrote a memorandum to Emperor Franz Joseph with a strongly apocalyptic, predictive and embittered tone. He used the hitherto unknown word "Weltkrieg" (meaning World War). "It is my firm conviction that Germany's two neighbors [Russia and France] are carefully proceeding with military preparations, but will not start the war so long as they have not attained a grouping of the Balkan states against us that confronts the monarchy with an attack from three sides and pins down the majority of our forces on our eastern and southern front."

On the day of the assassination of Archduke Franz Ferdinand, Tisza immediately traveled to Vienna where he met Minister of Foreign Affairs Count Leopold Berchtold and Army Commander Count Franz Conrad von Hötzendorf. They proposed to solve the dispute with arms, attacking Serbia. Tisza proposed to give the government of Serbia time to take a stand as to whether it was involved in the organisation of the murder and proposed a peaceful resolution, arguing that the international situation would settle soon. Returning to Budapest, he wrote to Emperor Franz Joseph saying he would not take any responsibility for the armed conflict because there was no proof that Serbia had plotted the assassination. Tisza opposed a war with Serbia, stating (correctly, as it turned out) that any war with the Serbs was bound to trigger a war with Russia and hence a general European war. He did not trust in the Italian alliance, due to the political aftermath of the Second Italian War of Independence. He thought that even a successful Austro-Hungarian war would be disastrous for the integrity of Kingdom of Hungary, where Hungary would be the next victim of Austrian politics. After a successful war against Serbia, Tisza foresaw a possible Austrian military attack against the Kingdom of Hungary, where the Austrians want to break up the territory of Hungary.

Some members of the government, such as Count Franz Conrad von Hötzendorf, had wanted to confront the resurgent Serbian nation for some years in a preventive war, but the Emperor, 84 years old and an enemy of all adventures, disapproved.

The foreign ministry of Austro-Hungarian Empire sent ambassador László Szőgyény to Potsdam, where he inquired about the standpoint of the German Emperor on 5 July. Szőgyény described what happened in a secret report to Vienna later that day:

I presented His Majesty [Wilhelm] with [Franz Joseph's] letter and the attached memorandum. The Kaiser read both papers quite carefully in my presence. First, His Majesty assured me that he had expected us to take firm action against Serbia, but he had to concede that, as a result of the conflicts facing [Franz Joseph], he needed to take into account a serious complication in Europe, which is why he did not wish to give any definite answer prior to consultations with the chancellor....

When, after our déjeuner, I once again emphasized the gravity of the situation, His Majesty authorized me to report to [Franz Joseph] that in this case, too, we could count on Germany's full support. As mentioned, he first had to consult with the Chancellor, but he did not have the slightest doubt that Herr von Bethmann Hollweg would fully agree with him, particularly with regard to action on our part against Serbia. In his [Wilhelm's] opinion, though, there was no need to wait patiently before taking action.

The Kaiser said that Russia's stance would always be a hostile one, but he had been prepared for this for many years, and even if war broke out between Austria–Hungary and Russia, we could rest assured that Germany would take our side, in line with its customary loyalty. According to the Kaiser, as things stood now, Russia was not at all ready for war. It would certainly have to think hard before making a call to arms.

But now the leaders of Austria–Hungary, especially General Count Leopold von Berchtold, backed by its ally Germany, decided to confront Serbia militarily before it could incite a revolt; using the assassination as an excuse, they presented a list of ten demands called the July Ultimatum, expecting Serbia would never accept. When Serbia accepted nine of the ten demands but only partially accepted the remaining one, Austria–Hungary declared war. Franz Joseph I finally followed the urgent counsel of his top advisers.

Over the course of July and August 1914, these events caused the start of World War I, as Russia mobilized in support of Serbia, setting off a series of counter-mobilizations. In support of his German ally, on Thursday, 6 August 1914, Emperor Franz Joseph signed the declaration of war on Russia. Italy initially remained neutral, although it had an alliance with Austria–Hungary. In 1915, it switched to the side of the Entente powers, hoping to gain territory from its former ally.

The Austro-Hungarian Empire played a relatively passive diplomatic role in the war, as it was increasingly dominated and controlled by Germany. The only goal was to punish Serbia and try to stop the ethnic breakup of the Empire, and it completely failed. Instead as the war went on the ethnic unity declined; the Allies encouraged breakaway demands from minorities and the Empire faced disintegration. Starting in late 1916 the new Emperor Karl removed the pro-German officials and opened peace overtures to the Allies, whereby the entire war could be ended by compromise, or perhaps Austria would make a separate peace from Germany. The main effort was vetoed by Italy, which had been promised large slices of Austria for joining the Allies in 1915. Austria was only willing to turn over the Trentino region but nothing more. Karl was seen as a defeatist, which weakened his standing at home and with both the Allies and Germany.

As the Imperial economy collapsed into severe hardship and even starvation, its multi-ethnic army lost its morale and was increasingly hard-pressed to hold its line. In the capital cities of Vienna and Budapest, the leftist and liberal movements and opposition parties strengthened and supported the separatism of ethnic minorities. As it became apparent that the Allies would win the war, nationalist movements, which had previously been calling for a greater degree of autonomy for their majority areas, started demanding full independence. The Emperor had lost much of his power to rule, as his realm disintegrated.

At the start of the war, the army was divided into two: the smaller part attacked Serbia while the larger part fought against the formidable Imperial Russian Army. The invasion of Serbia in 1914 was a disaster: by the end of the year, the Austro-Hungarian Army had taken no territory, but had lost 227,000 out of a total force of 450,000 men. However, in the autumn of 1915, the Serbian Army was defeated by the Central Powers, which led to the occupation of Serbia. Near the end of 1915, in a massive rescue operation involving more than 1,000 trips made by Italian, French and British steamers, 260,000 Serb surviving soldiers were transported to Brindisi and Corfu, where they waited for the chance of the victory of Allied Powers to reclaim their country. Corfu hosted the Serbian government in exile after the collapse of Serbia and served as a supply base to the Greek front. In April 1916 a large number of Serbian troops were transported in British and French naval vessels from Corfu to mainland Greece. The contingent numbering over 120,000 relieved a much smaller army at the Macedonian front and fought alongside British and French troops.

On the Eastern front, the war started out equally poorly. The Austro-Hungarian Army was defeated at the Battle of Lemberg and the great fortress city of Przemyśl was besieged and fell in March 1915. The Gorlice–Tarnów Offensive started as a minor German offensive to relieve the pressure of the Russian numerical superiority on the Austro-Hungarians, but the cooperation of the Central Powers resulted in huge Russian losses and the total collapse of the Russian lines and their 100 km long retreat into Russia. The Russian Third Army perished. In summer 1915, the Austro-Hungarian Army, under a unified command with the Germans, participated in the successful Gorlice–Tarnów Offensive. From June 1916, the Russians focused their attacks on the Austro-Hungarian army in the Brusilov Offensive, recognizing the numerical inferiority of the Austro-Hungarian army. By the end of September 1916, Austria–Hungary mobilized and concentrated new divisions, and the successful Russian advance was halted and slowly repelled; but the Austrian armies took heavy losses (about 1 million men) and never recovered. The Battle of Zborov (1917) was the first significant action of the Czechoslovak Legions, who fought for the independence of Czechoslovakia against the Austro-Hungarian army. However the huge losses in men and material inflicted on the Russians during the offensive contributed greatly to the revolutions of 1917, and it caused an economic crash in the Russian Empire.

In May 1915, Italy attacked Austria–Hungary. Italy was the only military opponent of Austria–Hungary which had a similar degree of industrialization and economic level; moreover, her army was numerous (≈1,000,000 men were immediately fielded), but suffered from poor leadership, training and organization. Chief of Staff Luigi Cadorna marched his army towards the Isonzo river, hoping to seize Ljubljana, and to eventually threaten Vienna. However, the Royal Italian Army were halted on the river, where four battles took place over five months (23 June – 2 December 1915). The fight was extremely bloody and exhausting for both the contenders.

On 15 May 1916, the Austrian Chief of Staff Conrad von Hötzendorf launched the Strafexpedition ("punitive expedition"): the Austrians broke through the opposing front and occupied the Asiago plateau. The Italians managed to resist and in a counteroffensive seized Gorizia on 9 August. Nonetheless, they had to stop on the Carso, a few kilometres away from the border. At this point, several months of indecisive trench warfare ensued (analogous to the Western front). As the Russian Empire collapsed as a result of the Bolshevik Revolution and Russians ended their involvement in the war, Germans and Austrians were able to move on the Western and Southern fronts much manpower from the erstwhile Eastern fighting.

On 24 October 1917, Austrians (now enjoying decisive German support) attacked at Caporetto using new infiltration tactics; although they advanced more than 100 km (62.14 mi) in the direction of Venice and gained considerable supplies, they were halted and could not cross the Piave river. Italy, although suffering massive casualties, recovered from the blow, and a coalition government under Vittorio Emanuele Orlando was formed. Italy also enjoyed support by the Entente powers: by 1918, large amounts of war materials and a few auxiliary American, British, and French divisions arrived in the Italian battle zone. Cadorna was replaced by General Armando Diaz; under his command, the Italians retook the initiative and won the decisive Battle of the Piave river (15–23 June 1918), in which some 60,000 Austrian and 43,000 Italian soldiers were killed. The multiethnic Austro-Hungarian Empire started to disintegrate, leaving its army alone on the battlefields. The final battle was at Vittorio Veneto; after 4 days of stiff resistance, Italian troops crossed the Piave River, and after losing 90,000 men the defeated Austrian troops retreated in disarray pursued by the Italians. The Italians captured 448,000 Austrian-Hungarian soldiers (about one-third of the imperial-royal army), 24 of whom were generals, 5,600 cannons and mortars, and 4,000 machine guns. The military breakdown also marked the start of the rebellion for the numerous ethnicities who made up the multiethnic Empire, as they refused to keep on fighting for a cause that now appeared senseless. These events marked the end of Austria–Hungary, which collapsed on 31 October 1918. The armistice was signed at Villa Giusti on 3 November.

On 27 August 1916, Romania declared war against Austria–Hungary. The Romanian Army crossed the borders of Eastern Hungary (Transylvania), and despite initial successes, by November 1916, the Central Powers formed by the Austro-Hungarian, German, Bulgarian, and Ottoman armies, had defeated the Romanian and Russian armies of the Entente Powers, and occupied the southern part of Romania (including Oltenia, Muntenia and Dobruja). Within 3 months of the war, the Central Powers came near Bucharest, the Romanian capital city. On 6 December, the Central Powers captured Bucharest, and part of the population moved to the unoccupied Romanian territory, in Moldavia, together with the Romanian government, royal court and public authorities, which relocated to Iași.

In 1917, after several defensive victories (managing to stop the German-Austro-Hungarian advance), with Russia's withdrawal from the war following the October Revolution, Romania was forced to drop out of the war.

Whereas the German army realized it needed close cooperation from the homefront, Habsburg officers saw themselves as entirely separate from the civilian world, and superior to it. When they occupied productive areas, such as southern Romania, they seized food stocks and other supplies for their own purposes and blocked any shipments intended for civilians back in the Austro-Hungarian Empire. The result was that the officers lived well, as the civilians began to starve. Vienna even transferred training units to Serbia and Poland for the sole purpose of feeding them. In all, the Army obtained about 15 percent of its cereal needs from occupied territories.

The Austro-Hungarian Empire then withdrew from all defeated countries. By 1918, the economic situation had deteriorated. Leftist and pacifist political movements organized strikes in factories, and uprisings in the army had become commonplace. During the Italian battles, the Czechoslovaks and Southern Slavs declared their independence. On 31 October Hungary ended the personal union with Austria, officially dissolving the Monarchy. At the last Italian offensive, the Austro-Hungarian Army took to the field without any food and munition supply and fought without any political supports for a de facto non-existent empire. On the end of the decisive joint Italian, British and French offensive at Vittorio Veneto, the disintegrated Austria–Hungary signed the Armistice of Villa Giusti on 3 November 1918.

The Austro-Hungarian Monarchy collapsed with dramatic speed in the autumn of 1918. In the capital cities of Vienna and Budapest, the leftist and liberal movements and politicians (the opposition parties) strengthened and supported the separatism of ethnic minorities. These leftist or left-liberal pro-Entente maverick parties opposed the monarchy as a form of government and considered themselves internationalist rather than patriotic. Eventually, the German defeat and the minor revolutions in Vienna and Budapest gave political power to the left/liberal political parties. As it became apparent that the Allied powers would win World War I, nationalist movements, which had previously been calling for a greater degree of autonomy for various areas, started pressing for full independence. The Emperor had lost much of his power to rule, as his realm disintegrated.

The Treaty of Saint-Germain-en-Laye (between the victors of World War I and Austria) and the Treaty of Trianon (between the victors and Hungary) regulated the new borders of Austria and Hungary, leaving both as small landlocked states. The Allies assumed without question that the minority nationalities wanted to leave Austria and Hungary, and also allowed them to annex significant blocks of German- and Hungarian-speaking territory. As a result, the Republic of Austria lost roughly 60% of the old Austrian Empire's territory. It also had to drop its plans for union with Germany, as it was not allowed to unite with Germany without League approval. The restored Kingdom of Hungary, which had replaced the republican government in 1920, lost roughly 72% of the pre-war territory of the Kingdom of Hungary.

Main Source Used: en.wikipedia.org/wiki/Austria-…