By the 1580s, Elizabeth had fallen into definite disfavor with Philip II of Spain. Not only was she a Protestant, not only had she refused his marriage proposals years before, she had also sent Leicester to the Netherlands to fight the Spanish in 1585. Moreover, she had covertly supported Sir Francis Drake's attacks on Spanish treasure galleons returning from the New World; in September 1580, Drake had returned from sailing around the world with a cargo of Spanish gold, worth 1.5 million ducats, raided from galleons in the New World. When Elizabeth killed off her Catholic rival Mary Queen of Scots, Philip lost his patience. Personally angered and wanting England for himself, decided in 1587 that the time was ripe for an invasion of England.
Philip was readying the Spanish Armada when Drake led a raid on the armada at Cadiz in April 1587. This attack took the Spanish entirely by surprise, and Drake's maneuver set back the Spanish invasion by about a year. Drake also managed to steal some Spanish treasure in his raid. In July 1588, Philip finally managed to launch the supposedly invincible Spanish Armada. His hope was to swing the fleet by the Netherlands, pick up his army there, and transport them across the English Channel for a ground invasion.
England's competent navy, helped by a fortuitous wind (referred to as the "Protestant Wind"), managed to defeat the Armada, forcing Philip's remaining ships into the North Sea, where they then destroyed much of Spain's remaining military might. On July 28, England defeated Spain in a decisive battle, preventing the Spanish from landing in England. Fleeing north, the Armada was wracked by storms. Of the 30,000 Spanish soldiers Philip had sent to invade, only 10,000 survived.
Meanwhile, Britain's army prepared for battle on land, assuming that the "Invincible" Armada would be able to land Philip's troops. To inspire the troops at Tilbury, Elizabeth made one of the most famous speeches of her career. She said, "I have but the body of a weak and feeble woman, but I have the heart and stomach of a king... and think foul scorn that any Prince in Europe should dare to invade the borders of my realm." Yet there was no need of land battles, and on November 24, 1588, the nation celebrated a national day of Thanksgiving for its victory over Spain.
The conflict with the Spanish Armada represented the height of the long struggle between Protestant England and Catholic Spain. Right up until the attempted invasion by Philip, Elizabeth had continually tried to negotiate her way to peace. In fact, stubbornly believing that peace could be achieved without fighting, she did not attend sufficiently to ready her navy, which, as a result, entered into battle somewhat unprepared. However, the navy had been a priority of Elizabeth's throughout her reign, and when the Armada faced the British ships, they were in for a surprise. England had 34 ships in good condition, and Philip was operating on the egregiously mistaken information that the British ships were rotting hulls. During the war, Elizabeth micro-managed all expenditures, infuriating Walsingham.
Elizabeth had a private arrangement with Sir Francis Drake. She encouraged and partially financed him in his raiding of Spanish treasure ships, and rewarded him handsomely for his exploits. She even promised to disavow any knowledge of his actions were he to be caught. As Elizabeth loved nothing so much as making money, Drake was one of her famed "favorites". When the voyage that returned in 1580 brought a 100% return, doubling Elizabeth's investment, she held a massive feast aboard his ship, the Golden Hind, the following April, knighting him for his service. Drake was ready with an exotically themed gift for the Queen: a frog made of diamonds.