The first half of 1902 saw the growth of optimism regarding Britain's international standing. The Boer War had drawn to a successful conclusion. There had been no continental coalition against Britain. The Hay-Pauncefote Treaty of 1901, under which Britain accepted that the United States would have the sole right to build a canal across Central America connecting the Atlantic and the Pacific, had softened relations with the United States and allowed for reduction of forces in that part of the world. Following the alliance with Japan, there was relief in the Far East as well. On the other hand, some developments were causing concern. The experience of success in South Africa had been more unnerving than exhilarating. It led to the demand for a fresh appraisal of strategic and defence policies. On the economic front, following a general recession in trade, the debate upon Britain's capacity to preserve its economic lead was acquiring more pessimistic contours. The failure of efforts to arrive at some settlement with Germany was seen as a pointer to inexorably diminishing diplomatic bargaining power.
When negotiations for an alliance were dropped in December 1901, neither Britain nor Germany thought that these would not be renewed. At that time, Russia and France were perceived as enemies while Britain did not have any plan of war directed against Germany or the Triple Alliance. But within five years, the diplomatic scene changed dramatically. By 1907, ententes were formed with France and Russia while Germany emerged as the principal enemy. When this process started, Balfour was at the helm of affairs. In July 1902, on Salisbury's retirement, he became Prime Minister. He was in awe of Russia's power and was prepared to harness all resources to defend the Indian Empire. Lansdowne remained Foreign Minister.
Historians have tended to explain this new course in British foreign policy in terms of the growing anxiety about the overall increase in the power of Germany. 1 But, in this connection, it would be well to remember that efforts to look for an associate, initiated in 1898, had been coincidental with the grave consciousness of the inadequacy of resources at Britain's disposal to defend the Raj. Repeated efforts to sign agreements with Germany did not produce positive results. The problem of the defence of India remained unresolved. The failure to befriend Germany had ended the hopes of seeing Russia entangled in Europe