Yang boards the Brunhilde and meets with Reinhard. Yang declines an offer by Reinhard to the position of Imperial Fleet Admiral, instead preferring to retire to a quiet life. Reinhard and Yang discuss government and philosophy. The treaty of Barlat is announced, formally ending hostilities. The concessions within the treaty increase civil unrest, public anger turns from the Empire to former Chairman Trüniht. Admiral Lennenkanpt is appointed Imperial consul of Heinessen. Julian, Mashengo, and Boris Konev prepare to visit Earth. June 20, 799 S.C. / 490 I.C.: The regent of the young Empress signs a declaration abdicating the throne to Reinhard. Beginning of the New Empire; year 1 of the New Imperial Calendar (N.I.C.).

Yang organizes his fleet for a blitzkrieg directly at Reinhard's flagship, the Brunhilde. Reinhard divides his fleet into multiple layers of ships, providing an rotation for each broken layer. Ivan Konev is killed in battle when his strike craft is lured into cruiser fire. Yang realizes that it has become an issue of endurance if Reinhard's fleet is continuously reforming the front line. The Alliance fleet tricks Reinhard's front line into entering an asteroid field. Reinhard is divided from his main force as that group is surrounded by Yang's fleet. Müller's fleet is the first to return, rescuing the Brunhilde and acting as a shield.

Yang announces R&R time before the final battle. Julian and Yang discuss the differing battle goals for both sides. The Alliance needs to kill Reinhard while the Empire needs to hold out long enough for reinforcements to trap the Alliance. Yang finally reciprocates Frederica's feelings and proposes marriage after the war is over. Frederica is thrilled at the idea. It is revealed that Yang felt a large amount of guilt at pursuing familial happiness with all the deaths he has caused. Both fleets engage each other cautiously; both sides suspect traps or tricks from the other.

Yang's fleet nears firing range of the Brunhilde, but a message from Heinessen declares a ceasefire. During the battle of Vermillion, Hildegard had convinced Mittermeyer fleet to take Heinessen. Hildegard is wary of Reuenthal's ambitions, but has Mittermeyer convince Reuenthal to join the Heinessen attack. In Hildegard's judgement, the battle of Vermillion would have concluded in Reinhard's death before the other fleets could return in time. Trüniht plans to surrender, while the other members of the Alliance government would prefer to fight and die. During the meeting, armed Earth Cult members rescue Trüniht. The surrender of the Alliance has divided Yang's staff, some preferring to ignore orders and kill Reinhard while others grudgingly accept the ceasefire. It is decided that a portion of Yang's staff will escape with Admiral Merkatz to a life of piracy.

Reinhard is displeased by Kempf's report and decides to dispatch Mittermeyer end Reuenthal Fleet; he thinks the best tacticts was to smash Geiesburg against Iserlohn and destroy both fortresses (Yang has the same idea). Imperial scout ships detect Yang's reinforcement fleet. Kempf plans to lure the Iserlohn Fleet out of the fortress by pretending to retreat, then strike and seal it in the fortress, which will allow him to attack the reinforcements. Julian Minci sees through his plan. Merkatz, leading the Iserlohn fleet, pretends to fall into the trap, thus the Imperial Fleet is attacked from behind when it engages Yang's fleet. Kempf finally decides to smash Geiesburg into Iserlohn, but the Alliance's fleet destroys the engines, and the damaged the fortress moves randomly, destroying many imperial ships, before blowing up. The Imperial Fleet falls back but, against Yang's order, some commanders decide to pursue the Imperial Fleet.

As Julian travels to Heinessen to accept his commission in Phezzan; he thinks about how Yang's background in history. Julian reviews the history of humanity during this long trip. The history lesson starts with the birth of the Galactic Republic in 2801 and man's continued expansion into space. The lesson then touches on space piracy, the increase in military powers, and the eventual decadence which let to the rise of the Galactic Empire. The final parts of the lesson include the creation of the Alliance up to the first military conflict between the Alliance and Empire.

On his way to Heinessen, Yang thinks about the current situation. The Alliance's disrespect for human rights, democracy and freedom on the pretense of the war is leading the nation toward its destruction; moreover, the failed invasion of the Empire and the civil war have drastically weakened the Alliance's military. In Heinessen, Yang is separated from his companions, Louis Mashengo and Frederica Greenhill. While Yang's personality and actions are questionned by the committee, Greenhill and Mashengo try to reach him, but any contact is denied. They go to Admiral Bucock for help, but are attacked by the P.K.C. (which appears to be related to the Earth Cult) and rescued by Bucock's staff. April 10, 798 S.C. / 489 I.C.: the Geiesburg Fortress enters the Iserlohn Corridor.

Geiesburg and Iserlohn fire at each other, causing little damage to the fortresses. After that, Schenkopp and the Rosen Ritter repel a boarding party. Kempf then decide to use the firepower of Geiesburg and the Müller Fleet to make a breach in Iserlohn's outer wall. The operation succeeds, but the Imperial forces can't get through because Admiral Merkatz launches the Iserlohn Fleet and drive off the Müller Fleet. Meanwhile, Yang is on his way back with some reinforcement. April, 15, 798 S.C. / 489 I.C.: in spite of the numerical advantage of the Imperial fleet, the situation is deadlocked. However, Müller learns from a dying prisoner of war that Yang is not in Iserlohn.

The Imperial fleet under Mittermeyer invades Phezzan after feigning to approach Iserlohn. Kesselring tries to kill Rubinsky, but Rubinsky had a trap laid out and kills Kesselring instead. Rubinsky goes into hiding. Julian and Mashengo destroy the computers in the Alliance High commissioner's office. Julian later finds a smuggler to take him, Mashengo, and the cowardly Alliance commissioner out of Phezzan space. Mittermeyer orders the execution of soldiers which raped and robbed civilians. The Empire secures Alliance space maps from the Phezzan Navigation Office.

The Imperial fleet takes a snake formation as they approach the Rantemario system. Bucock fleet is forced to attack the center of the snake formation as their only plausible tactical response. The Alliance fleet is badly damaged as the much larger Imperial fleet closes in on all sides. Bocock tries to minimize losses to the Alliance fleet by using a space current to slow down the Empire's advance and disabling enemy engines with fighters. At the last moment Yang's fleet approaches from behind, stopping the total destruction of the Alliance fleet under Bucock. The Imperial fleet reorganizes their fleet and heads for next Alliance system. Julian's destroyer joins up with the Alliance fleet at Heinessen.

Yang attacks the supply lines of the Imperial fleet successfully. Next, Yang defeats a fleet near a black hole. Reinhard's anger at these losses are reaching boiling point. Mittermeyer and Reuenthal realize that they will have to launch a large offensive versus Yang if they hope to win before morale and food drops to dangerous levels. Yang defeats another fleet by filling supply pods with helium, then igniting the pods when the Imperial fleet nears them for pick up. Yang's guerrilla warfare tactics leave the Imperial fleet with uncertainty on where Yang will appear next. An attack on Heinessen is vetoed by both the Imperial Admirals and Reinhard. The only remaining option is a full fleet encounter by using Reinhard as bait.

Reuenthal plans a war of attrition against Iserlohn. Reuenthal sees the Hyperion, Yang's flagship, emerge from port and decides to rush his fleet to destroy the Hyperion. However this is a feint and the Rosen Ritter led by Schenkopp latch on to Reuenthal's flagship and engage in combat. The battle is a draw and Schenkopp eventually withdraws. Reuenthal returns to his plan of attrition by rotating his attack forces in small groups. December 9, 798 S.C. / 489 I.C.: Part two of Operation Ragnarok launches from the Empire homeworld.

On Iserlohn Yang decides to abandon the fortress. Yang realizes that the fortress no longer has strategic value as a choke point defense after the Imperial fleet has broken through Phezzan space. Furthermore, the Fortress would be able to hold out till the end of the war, but would probably be forced back into Empire territory in the event of a peace treaty. Yang's fleet prepares bombs and another surprise on Iserlohn and abandons the fortress of all staff and civilians. January 9, 799 S.C. / 490 Reuenthal has retaken Iserlohn fortess.

While the inquiry continues, Greenhill tries to find out where is Yang and discovers that the government controls the media and leaves little room for the opposition: the Free Planets Alliance is a democracy in name only. When the news of a new imperial attack reaches Heinessen, the inquiry is suspended and Yang sent back to Iserlohn. However, the journey will take at least four weeks: Yang's staff thinks about a strategy to hold on and not let the enemy know that Yang is not there.

The Mittermeyer and Reuenthal Fleets meet the retreating Imperial fleet and destroy the Alliance's pursuing ships before falling back when the Iserlohn Fleet shows up. In Odin, Müller is forgiven by Reinhard. Reinhard tells Hildegard von Mariendorf that power should not be inherited, but seized. In Phezzan, Kesselring explains to Rubinsky that the Free Planets Alliance is on the verge of bankruptcy; they decide to go on with their plan. It is revealed that Kesselring is Rubinsky's illegitimate son. Back in Iserlohn, Yang shares with Julian Minci his thoughts about military strength and how it is often used against the citizen it was supposed to protect.

July 6-7, 798 S.C. / 489 I.C.: Landsberg and Schumacher kidnap the young Emperor under hidden underground tunnels within the palace grounds. Admiral Molt commits suicide over his failure to guard the grounds and product the Emperor. Hildegard sees through the kidnapping and confronts Reinhard over why he allowed the kidnapping to take place. Reinhard explains he cautiously joined with Phezzan as a method of justification for the Empire to invade the Alliance.

Admiral Bucock informs Julian that the alliance government is trying to divide Yang from his allies as a way of preventing any future powergrab by Yang. Reinhard discusses his plans on using the Phezzan corridor with his Admirals, calling the plan Operation Ragnarok. Over 1 million ships are planned to be in the fleet. Reinhart speaks with Oberstein and discuss the use and eventually the expendability of Boltik, current Commissioner of Phezzan. Oberstein creates a secret police with Lang as the leader. September 20, 798 S.C. / 489 I.C.: 8 month old Catherine succeeds the throne of the Empire as the new Empress.

Yang is promoted to Fleet Admiral as he lands on Heinessen. Yang clarifies his war plan to the government of the Alliance. The war plan is to attack the spread out Imperial fleet and lure out Reinhard. If Reinhard is killed, his admirals will lose their unifying force, potentially causing infighting. Julian and Yang go out to dinner and catch up on the events which have happened in the last few months. Merkatz leads the exile Imperial government fleet to join with Yang's. Reinhard has a flu and thinks of the past. The end of February, 799 S.C. / 490 I.C.: The unified Alliance fleet launches from Heinessen.

The young Emperor passes through Phezzan into Alliance territory. The Alliance government declares that they will shelter the refugees while the nobles announce a government in exile. Merkatz is appointed as secretary of defense without his own consent. August, 20, 798 S.C. / 489 I.C.: Reinhard declares the government in exile kidnapped the young Emperor in an underhanded act of cowardice. The public within the Empire mobilizes in support of Reinhard's declaration of total war.

January 1, 798 S.C. / 489 I.C.: Reinhard von Lohengramm is now Premier and Commander-in-chief of the imperial military. He implements many reforms for the welfare of the people. Meanwhile, an training sortie, under Dusty Attenborough's command, turns out to be Julian Minci's first battle as a fighter pilot. The Attenborough Fleet is on the verge to be crushed, but Yang Wen-li, with the help of Admiral Merkatz, goes out of Iserlohn with the whole fleet and saves the day (January, 16).

Admiral Kessler, chief of the Military Police, informs Reinhard that two former members of the Lippstadt League (Landsberg and Schumacher) have arrived in Odin, and may be involved in some plot. Reinhard asks Hildegard for her advice: shes thinks they are in fact sent by Phezzan and will try to abduct someone, probably the young Emperor. later, she pays a visit to Annerose von Grünewald (Reinhard's elder sister) and persuades her to let Reinhard increase the security measures. Reinhard summons Boltik, the Commissioner of Phezzan, tells him he knows everything about their plan, and asks what is Phezzan's interest: Boltik answers that Phezzan expects to control the space communications and trade in an unified Empire. Reinhard agrees to act according to Rubinsky's plan, only if Phezzan grants a free passage through the Phezzan Corridor to the Imperial Fleet.

Julian is assigned to Phezzan by central command. Yang and his staff decide to assign Mashengo to be Julian's body guard. Yang shares with Julian his thoughts about the possibility of Phezzan allying with the Empire due to the power balance being shifted. Julian mentions the possibility of Phezzan allying with the Empire not because of realist means, but instead out of ideological or religious reasons. Julian agrees to be of use to Yang and go to Phezzan to spy on any developments. The Iserlohn staff say their goodbyes to Julian.

Julian arrives on Phezzan. The next evening, he attends his welcome party. Julian spreads conjecture about a possible invasion of Phezzan from the Empire. Reinhart organizes his fleet for operation Ragnarok. Admiral Bucock tries to warn the Alliance National Defense Council about a possible Phezzan corridor attack, but is ignored. November, 20, 798 S.C. / 489 I.C.: Admiral Reuenthal leading an Imperial Fleet of 36,000 ships lays siege to Iserlohn. Carrying out the first part of Operation Ragnarok.

Julian and friends leave Phezzan on a cargo ship. Julian tricks the captain of an Imperial destroyer and captures the destroyer. Reinhard organizes and briefs his fleet on the invasion plan. The Imperial fleet has a 3 to 1 fleet number advantage over the hodgepodge fleet of the Alliance. The Imperial and Alliance fleets are days away from a battle in the uninhabited Rantemario star system.

January, 798 S.C. / 489 I.C.: Admiral von Schaft, head of the Science and Technology Division, works out a plan to take Iserlohn back. The Geiesburg fortress is to become a mobile fortress by adding warp engines: its firepower is a match to Iserlohn's, so the Imperial fleet will be able to defeat the Iserlohn Fleet. The operation will be under Admiral Kempf's command, with Admiral Müller as second-in-command. In Phezzan, Rubinsky decides to support the plan and asks Kesselring to find a way to move Yang away from Iserlohn. Some of Mittermeyer and Reuenthal's background is revealed.