After the disastrous Battle of Hattin, much of the Holy Land had been lost to Saladin, including Jerusalem. The remnants of the crusader army flocked to Tyre, which was one of the major cities still in Christian hands. Reginald of Sidon was in charge of Tyre and was in the process of negotiating its surrender with Saladin, but the arrival of Conrad and his soldiers prevented it. Reginald left the city to refortify his castle at Belfort, and Conrad became the leader of the army. He immediately began to repair the defenses of the city, and he cut a deep trench across the mole that joined the city to the shore, to prevent the enemy from approaching the city.

All of Saladin's attacks failed, and the siege dragged on, with occasional sallies by the defenders, led by a Spanish knight named Sancho Martin, better known as the "green knight" due to the colour of his arms. It became clear to Saladin that only by winning at sea could he take the city. He summoned a fleet of 10 galleys commanded by a North African sailor named Abd al-Salam al-Maghribi. The Muslim fleet had initial success in forcing the Christian galleys into the harbour, but through the night of 29–30 December, a Christian fleet of 17 galleys attacked 5 of the Muslim galleys, inflicting a decisive defeat and capturing them.

After these events, Saladin summoned his emirs for a conference, to discuss if they should retire or keep trying. The opinions were divided, but Saladin, seeing the state of his troops, decided to retire to Acre.