With the Union naval blockade in place and the South now unable to get to or from the high seas, the South's vital export business was crippled.

But Confederate naval designers came up with an ingenious plan.  They would restore the sunken Union steam-driven frigate, the Merrimac, and cover her topsides with steel plating which would make her invulnerable to Union cannons. This would turn her into a terror against the blockading Union fleet.

On March 2nd, renamed the Virginia, this ten-cannon monster (operating under steam power and thus needing no masts, and showing only slanting ironclad sides above water) steamed into the Union fleet blockading the mouth of the Chesapeake Bay, creating havoc.  She rammed and sank the Cumberland, sank the Congress, and ran the Minnesota aground before night set in and she returned to port.

On the following morning she headed out toward the Union fleet with the intention of finishing off the Minnesota and then turning on the three other Union ships still blockading the harbor.  But she was met by an equally strange ironclad sailing vessel, the Monitor, that the North had hastily put together when it first got wind of the South's intention of building an ironclad ship.  The Monitor was just a round turret with two canons inside sitting atop a flat barge whose deck barely rose above the water.  These two monster machines met and for four hours blasted away at each other.  The match finally ended when the Virginia (formerly Merrimac) withdrew.  Overall however, there was no victor and no vanquished in this battle.

The two ships never met again.  Then that May, the Union army captured Norfolk, the operational base of the Virginia.  Thus with nowhere to operate from, and with the South not wishing to surrender the Virginia to the North, her crew blew her up.

Over in the West, in Central Tennessee along the Tennessee and Cumberland Rivers at Forts Henry and Donelson, a series of fierce battles in February raged back and forth between Union and Confederate troops, with Grant inflicting a huge loss on the Confederates (15,000 of their troops captured), essentially knocking Kentucky and much of Tennessee out of the war.

But a Confederate comeback at Shiloh in April caught Grant by surprise (he was resting his troops on his approach to Memphis), causing 10,000 Union casualties over the two-day battle.  However, it was a costly victory for the Confederates, losing almost an equal number of their own men, plus on the first day of the battle their capable commanding officer Albert S. (A.S.) Johnston.

Also in April, Union forces under Naval Captain David Farragut captured the strategically key city of New Orleans at the base of the Mississippi River.  This opened up this vital waterway to a massive Union advance that would cut off Texas and Arkansas from the rest of the Confederacy.

Meanwhile, Grant quickly recovered from the blow at Shiloh and moved from the north down the Mississippi River until he approached the well-fortified town of Vicksburg located atop high cliffs overlooking a sharp bend or loop in the river. Vicksburg needed to be taken to complete the Union control of this vital waterway, a task that would prove to be daunting.

At first Grant attempted in December a direct assault on Vicksburg from the river, securing nothing in the two-month-long process.  Then he attempted the laborious process of building levees in order to divert the river through the swamps, again making no real headway in the process.  But Grant was not one to quit.  But the year would be out before he was able to attempt yet a different move on Vicksburg.

Action now began to pick up in the East over in Virginia. Lincoln had transferred command from McDowell to General George McClellan, the latter being an expert strategist and excellent organizer and builder of an efficient fighting force (Lincoln learned a lot of military strategy from him).  But he had two major flaws: he had a very high esteem of himself (having U.S. presidential plans in mind) and a low esteem of both Lincoln and Lincoln's main military strategist, General Winfield Scott; and worse, he had a very hard time committing to action the troops he had trained and equipped.  He loved his men, and they loved him.  But they were, after all, trained for battle, deadly battle, and that is the part that McClellan found hard to stomach.  Consequently, he was overly cautious about committing his troops to battle and selected actions only when there were strong odds in his favor for victory ... and glory for himself.

Lincoln wanted him to make a quick move south to attack directly the new Confederate capital at Richmond. But instead McClellan chose to bring his men by boat around to the peninsula southeast of Richmond and to march on the capital from that direction.  General Johnston moved his Confederate army quickly to confront the overly cautious McClellan and they met in battle at the Siege of Yorktown (April 5–May 4) and again along the Chickahominy River, where Johnston was badly wounded.  The Confederates then regrouped under their new commanding general, Robert E. Lee.  Now the war would be more than a battle of armies.  It would be a contest between generals.  And McClellan was not the type to do well against the elderly, but very aggressive Lee.

Immediately Lee, joined with Stonewall Jackson, took to the offensive against McClellan's forces in a number of pitched battles (the Seven Days Battles, June 25–July 1) during which the Union lost 16,000 of its 105,000 troops.  But Lee lost even more, almost 20,000 out of his 90,000 troops. After the last of the Seven Days Battles (at Malvern Hill), McClellan pulled his troops out of action, disappointing Lincoln because of the missed opportunity to end the war quickly.

With McClellan halting his troops in the Virginia southeast, Lincoln was forced to set up yet another army under General John Pope to help protect Washington and to press Lee from the north while Lee stood facing McClellan to the south.  Lincoln in fact hoped at that point that Pope and McClellan might engage Lee from both the north and the south in a pincer movement that might finally bring Lee to defeat.

But Lee, rightly unconcerned about McClellan, instead attacked the advancing Pope, also sending Jackson to the north around Pope's army, now putting Pope in the same trap that Lincoln had hoped to put Lee in.  The two armies met again at Manassas, with Pope's army losing 14,000 of his troops.  It all appeared to be something of a Confederate victory.  But the results were almost as devastating to the South, having themselves lost 8,000 men in the process.

Subsequently in August McClellan, who had avoided any involvement in the action, instead returned his army by ship to Washington, and himself back to his adoring supporters, to lobby with the politicians there for more troops and equipment. His goal, he claimed, was to smash Lee Napoleon-style with a single massive pitched battle.  Indeed, this latter-day Napoleon did not approve of the less dramatic process of winning the war with General Scott's Anaconda strategy of gradually strangling the South. In fact he threatened to resign his commission if Scott were not dismissed as commanding general and he himself appointed in his place (to which Lincoln finally yielded).  Such a Napoleonic self-image did McClellan hold of himself that it even caused some in Washington to suspect McClellan of planning a Napoleon-style military takeover of the Union!

In early September Lee decided to take his army across the Potomac into Maryland with the intent of invading the North and taking the pressure off his home state of Virginia.  He divided his army into three groups, with the same idea he had used at Manassas of surrounding from three directions and entrapping a Union army he was expecting to come after him.  But the plan was discovered by a couple of Union soldiers and relayed to McClellan.  McClellan now had the opportunity to attack in full force one of the three Confederate groups before they had a chance to converge.  But he refused to go after any of the Confederate groups.  Thus Jackson, leading one of those three groups, moved on Harpers Ferry, capturing 12,000 Union troops before joining Lee for the main battle which broke out at the Antietam Creek near Sharpsburg.

The fight at Antietam lasted all day and produced the highest one-day casualty rate of the entire war, in fact in any war America has ever been involved in. For instance, in one Union charge against the Confederate lines, 2,300 Union soldiers fell in just 20 minutes.  Overall, the North lost over 12,000 men, the South lost over 10,000.  But Lee was stopped and his plan (at least at this time) to take the war to the North was completely undone by the battle.

The next day Lee retreated back across the Potomac into Virginia, stunned by the losses.  But McClellan did not pursue him (of course!) – much to the intense displeasure of Lincoln.  Ultimately Lincoln decided to relieve McClellan as commander of the Army of the Potomac (November 7th) – and to turn that responsibility over to General Ambrose Burnside, a rather unwilling recipient of this responsibility.

The issue of slavery as a cause of war remained quite controversial.  Abolitionists had been pushing from the outset of the war for Lincoln to take a strong stand against slavery, making it the primary cause of the war.  Lincoln, though highly opposed to slavery, was more moved by the needs of preserving the unity of the American nation against the divisiveness of Southern instincts.  He was also afraid that a strong stand against slavery might alienate the border states of Maryland, Kentucky and Missouri.

But he knew it must be done, for there was talk of the English and French possibly recognizing the independence of the Confederacy.  But if Lincoln were to make the war seem more like a contention over slavery, both the British and French would want to avoid appearing to be in any way supportive of a slave-holding South. Lincoln therefore had to take some kind of public position that clearly cast this war as a battle over slavery.

Thus on September 22nd, having the victory of Antietam to show that he was not making this move out of desperation, Lincoln announced that effective January 1st of the following year, the slaves of any rebellious state would be considered by the United States government as free persons.  Further they could be enlisted in the Union's military service.

This had the effect of further weakening the South's social structure as more slaves poured North to escape slavery, many of the men even taking up arms as Union troops against their former masters.

It also made the war more clearly a civil rights campaign – which had the effect in Europe of undermining any thoughts of ever extending official diplomatic recognition to the Confederacy by a European government, thus further isolating the South politically and commercially.

The newly appointed commanding General Burnside knew why Lincoln had dismissed McClellan: Lincoln wanted unrelenting action against the Confederate army on the part of the Union army – not intermittent and inconclusive skirmishes. Lincoln wanted Richmond, the capital of the confederacy, taken.  But marching on Richmond meant having first to take the town of Fredericksburg which lay across the path of the northern approach to Richmond.

But Fredericksburg lay on the southern or opposite side of the wide Rappahannock River and furthermore was backed up by towering cliffs which stood over the city, from which the Confederates could put up a stiff defense of the city and its bridges. Nonetheless, Burnside decided that Fredericksburg had to be taken.

The only possibility of success lay in a surprise attack on the city, before the Confederates could get an army in place in the heights above Fredericksburg.  But for Burnside, such a surprise would not be forthcoming.  It took two weeks for his engineers to get pontoon bridges in place across the river, and by that time the Confederates were well-situated above the city.  When finally Burnside moved his troops across the river and into the abandoned town, butchery resulted. Almost 13,000 Union troops fell the next few days trying to take the heights (though amazingly so did over 5,000 Confederates defending the heights).  Defeated in this venture, Burnside withdrew his army, leaving Lee still in command of Fredericksburg.