By mid-September, Saladin had taken Acre, Nablus, Jaffa, Toron, Sidon, Beirut, and Ascalon. The survivors of the battle and other refugees fled to Tyre, the only city able to hold out against Saladin, due to the fortuitous arrival of Conrad of Montferrat. In Tyre, Balian of Ibelin had asked Saladin for safe passage to Jerusalem to retrieve his wife Maria Komnene, Queen of Jerusalem and their family. Saladin granted his request, provided that Balian not take up arms against him and not remain in Jerusalem for more than one day; however, Balian broke this promise.

Balian found the situation in Jerusalem dire. The city was filled with refugees fleeing Saladin's conquests, with more arriving daily. There were fewer than fourteen knights in the whole city. He prepared for the inevitable siege by storing food and money. The armies of Syria and Egypt assembled under Saladin, and after conquering Acre, Jaffa, and Caesarea, though he unsuccessfully besieged Tyre, the sultan arrived outside Jerusalem on September 20.

At the end of September, Balian rode out with an envoy to meet with the sultan, offering surrender. Saladin told Balian that he had sworn to take the city by force, and would only accept an unconditional surrender. Balian threatened that the defenders would destroy the Muslim holy places, slaughter their own families and the 5000 Muslim slaves, and burn all the wealth and treasures of the Crusaders. In the end, an agreement was made.