The Austro-Hungarian Compromise of 1867, which inaugurated the empire's dual structure in place of the former unitary Austrian Empire (1804–67), originated at a time when Austria had declined in strength and in power—both in the Italian Peninsula (as a result of the Austro-Sardinian War of 1859) and among the states of the German Confederation (where it had been replaced by Prussia as the dominant German power following the Austro-Prussian War, also named the German War, of 1866). Other factors in the constitutional changes were continued Hungarian dissatisfaction with rule from Vienna and increasing national consciousness on the part of other nationalities of the Austrian Empire. Hungarian dissatisfaction arose partly from Austria's suppression, with Russian support, of the Hungarian liberal revolution of 1848–1849. However, dissatisfaction with Austrian rule had grown for many years within Hungary, and had many other causes.

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

After the Austrian defeat at Königgrätz, reconciliation with Hungary was needed to regain status of a great power, and the new foreign minister Friedrich Ferdinand von Beust wanted to successfully conclude the stalemated negotiations with the Hungarians. To shore up support for the monarchy, Emperor Franz Joseph began negotiations for a compromise with the Hungarian nobility to ensure their support. In particular, Hungarian leaders demanded and received the Emperor's coronation as King of Hungary, and the re-establishment of a separate parliament at Budapest with powers to enact laws for the lands of the Hungarian crown.

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 & 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). There were only three k.u.k. ministries:
The Imperial & Royal Ministry of the Exterior and the Imperial House The Imperial & Royal War Ministry The Imperial & Royal Ministry of FinanceThe last of these was only responsible for financing the Imperial & Royal household, the diplomatic service, the common army and the common war fleet. All other state functions were to be handled separately by each of the two states.

TITLES:

Kaiser - Kaiser Franz Joseph I

Political Advisor -
Advisor of Health -
Treasurer -
Chief of Staff -

King of Bohemia -

King of Croatia -
King of Dalmatia -
Prince of Habsburg -
King of Hungary -
Duke of Austria -
Duke of Auschwitz -
Duke of Bosnia -