With Napoleon's power ever increasing, the British moved to form an alliance not long after Napoleon's coronation. The alliance had three parts: Britain, Austria (under Emperor Francis II) and Russia (under Czar Alexander I).
The alliance came just at the right time for Britain, as Napoleon was preparing for an assault on the Isle, which he derogatorily called "that island of shopkeepers." Extremely alarmed, the British deployed Admiral Nelson to the English Channel separating England and France. Meanwhile, the Austrian and Russian Armies were approaching France from the east. Napoleon, upset that his invasion of England had been preempted, was forced to move his troops to face the approaching Russo-Austrian army. On October 25, 1805, Nelson wiped out the French fleet at the Battle of Trafalgar.
Though defeated at sea, Napoleon had better luck on land. Although he did not manage an invasion of England, on December 2, 1805, he did defeat the Austrians and Russians at the Battle of Austerlitz. The Russians withdrew to Poland as the retreating Austrians ceded Venetia to Napoleon. With this success under his belt, Napoleon started working to rebuild the French fleet. At this time he also dissolved the old Holy Roman Empire (much of modern Germany) once and for all, replacing it with the Confederation of the Rhine, a federation of supposedly independent states actually ruled by the French Empire.
With Napoleon's designs on Germany apparent, the eastern German state of Prussia, led by King Frederick William III, decided (fairly misguidedly) to make war on France by itself. On October 1806, the French Army soundly defeated the Prussians at the battles of Jena and Auerstadt. Frederick William III fled east, to Konigsberg.
Moving into Poland, Napoleon next sent his forces against the Russian Army of Czar Alexander I, defeating it on June 14, 1807, at the Battle of Friedland. Instead of retreating and continuing the fight in Russia, Alexander decided to negotiate with Napoleon. France and Russia signed the Treaty of Tilsit in July 1807, under which the French and the Russians allied against the British. As a result, Napoleon consolidated almost all of Western Europe (minus Spain) in exchange for an agreement not to attack Russia. This treaty restored peace to the continent for a time.
Having now subdued the Russians, Austrians and Prussians, Napoleon focused on reaping his revenge on England for their victory at Trafalgar. His strategy was to economically strangle the "island of shopkeepers." To this end, Napoleon decided to shut down all European ports' shipping, robbing Britain of a market for its manufactured goods, and hoping to cause a depression in Britain. This plan, called the Continental System, was first announced by the Berlin Decree of 1806. Russia, as well as the independent but chastened Prussia and Austria, agreed to participate in the Continental System, and actually formally declared war on Great Britain.