February, 1864
Madrid
The unofficial peace talks would commence in Spain as representatives of America and Britain.
Naturally, Britain's emissaries demanded the return of Canada, Rupurt's Land, British Columbia and Vancouver.
America's representatives effectively told them that this was no longer possible as Canada (soon to be Canada and Quebec) would be independent countries while the western British North American lands would be only partial compensation for Britain's supporting (some would say propping up) of the Confederacy for 2 years and then the assault on various helpless American cities which caused tens of thousands of civilian fatalities and damage in the hundreds of millions.
Had Britain only remained true to the laws of Neutrality and Blockade which large THEY had established, then not an inch of British territory would be at risk.
By 1864, there was something of a stalemate as neither party seemed likely to advance further on land while the Royal Navy had discovered America would not surrender to Britain at sea.
Eventually the parties would break up, having reached an impasse.
Despite neither party having overly much to gain by continuing the conflict, the conference broke up without an serious steps towards a negotiated peace.
The positive side was that Disraeli had called off the worst of the Royal Navy abuses on defenseless coastal cities and towns.
Tampico
The eastern coastal city of Tampico was the secondary Mexican port to the Caribbean.....by a wide margin. The vast majority of Mexican trade went through Veracruz to the south.
But General Lee had been adamant that a suitable port be acquired for receiving supplies, even if the British and French domination of the seas would make getting those supplies through more difficult.
As it was, the French had barely garrisoned the city and, the 2000 French and Mexican "Junta" defenders would deem discretion the better part of valor.
The city fell easily enough though Lee was deeply concerned if any supplies may make it through.
Monterrey
Unlike his counterpart General Lee, who was marching down the east coast of Mexico towards the port town of Tampico in the company of General Ignacio Zaragoza and President Juarez, General Grant's western force was make less progress due to logistical difficulties and lack of local support.
Despite the presence of functionaries and "liaisons" and the like dispatched to the west by Juarez and his Liberal government in defacto exile, Grant was experiencing a great deal of difficulty gathering adequate numbers of wagons, teamsters, horses, etc to maintain his huge supply train.
As this region was nominally under "allied" control, Grant was forbidden to requisition any goods as part of the spoils of a foreign power. Lacking adequate funds to "buy" goods, the Union armies were already running dry. Pleas sent to Juarez were only partially met.
Grant was also expecting at least SOME help from the Mexicans in freeing their country. But the American reputation in Mexico had been shot for 18 years and didn't appear to be getting better. One day, 800 Mexican irregular cavalry from Chihuahua arrived to accompany the Americans south to Zacatecas. But then they disappeared a few days later.
The most Grant could get out of the local resistance armies in Monterrey were about 650 dedicated Patriots plus another 300 from Saltillo. These were, of course, fed from the Union supplies. At least, these men had been properly armed by the American "donations" to Juarez over the past year or two.
Grant would march stolidly towards Zacatecas, the center of the Mexican silver production.
Mexico City
The "Supreme Junta", basically the loose association of priests, aristocrats and soldiers which had summoned French aid, remained the defacto governing body of Mexico. Most desired a strong monarchy which would respect the traditional rights of the church, army and landowners.
In 1863, representatives of this Junta had been dispatched to Europe to seek out a reliable Catholic monarch. Napoleon III had pushed Maximillian of the Habsburg clan for the Crown as a defacto puppet of France. However, the French perfidity during the "German War" would sour that relationship to the point that no Austrian Prince could enticed.
Finally, tired of the matter, Napoleon III would announce that HE, via a Viceroy, would assume direct control over Mexico.
This would cause a stir as many of the Supreme Junta had desired an "independent" ruler. But the presence of the French Army in Mexico City as well as adequate support among the Junta (whose privileges Napoleon III promised to uphold) would ensure that Napoleon III was crowned Emperor of Mexico by proxy in 1864.
Beyond dismaying many members of the Supreme Junta, this would elicit powerful reactions among the Mexican Liberals, the Americans and Great Britain.
Paris
Throughout the French "War" with America, there had been precious little warring. In truth, beyond an opportunistic bit of selling arms to the Confederacy and seizure of some American trading ships at sea, the two nations had barely interacted in years.
The Emperor of France (and now Mexico) would learn of the plans of American invasion by least 1863 and dispatched a series of representatives to Washington offering a "just peace".
He was surprised with Lincoln ordered the emissaries from American shore with barely a moment's hesitation.
Apparently, the Americans were in no mood to negotiate.
London
Disraeli knew that, from a technical standpoint, that Britain and France were allies against the United States as both remained at war with that nation. However, neither European power had cooperated in any meaningful way and it was generally accepted that France's declaration of War upon the United States had been nothing more than a cynical ploy to allow greater leeway in Mexico by the distracted British.
With France effectively allying with Russia and Egypt in the eastern Mediterranean, the pretense of French and British amity was at an end.
While Britain possessed few direct colonial possessions on the mainland of Latin America (British Honduras, British Guyana), the Latin Nations were avid trading partners with Britain and the region represented a profitable corner of British trade.
The Emperor so brazenly claiming Mexico as his own put much of this at risk.
As the British were unwilling to risk war with France (and possible Russia, Italy and Egypt) by directly intervening against the French in Mexico, the British were left in the absurd position of rooting for America to evict the French for them, even as America and Britain remained at war.
As much as any other reason, this pushed Disraeli to halt most forms of attack on America's coasts.
In the meantime, the price of grain remained high, the textile workers remained unemployed and Britain seemed to have fewer and fewer takers for her wares.
Even the powerful British finance industry was shaking as American debts were naturally not paid.
Ottawa
In March, 1864, the first formal elections were held for the Commonwealth of Canada. George Brown was shortly elected Prime Minister by the newly elected Parliament. Per agreements with the United States and Quebec, there would be no hindrance of shipped goods through their neighbors' lands except in times of war.
As this WAS a time of war, much of the Canadian grain remained in warehouses.
Per the Treaty, all American troops were withdrawn from Canada except a modest number guarding the Welland Canal (these would be removed after the war).
This freed up another 30,000 troops to be transported to eastern Quebec, Mexico, the South, the eastern cities or just to be dismissed from the service.
April
Quebec
The first independent vote in Quebec would take place in April, 1864. While resentful of the large American garrison and suspicious that this would come back to haunt them, the Republic of Quebec would form its first Parliament. George Cartier was elected Prime Minister and promptly sought a reduction in America troops from Quebec's sovereign soil.
This Lincoln was prepared to do as most America troops were withdrawn except those in the region of Quebec. As the British would likely have complete control over the waters of the St. Lawrence, that meant that Quebec had to allow a series of American supply depots along the northern shoreline of the mighty river to support her forces in the east.
The Republic would also form her own army (armed and financially supported by the Americans) to defend her territory against the British. While still offended to have the situation IMPOSED upon them by the Americans, most of the Quebecois were happy to see the nearly forgotten dream of independence within reach. The America seizure of parts of Quebec south of the St. Lawrence would leave greater antipathy.
By 1864, there were 20,000 American soldiers along the northern coast of the St. Lawrence in Quebec and another 15,000 posted along the newly acquired southern territory. The rail junctions had been reestablished and this ensured that rapid reinforcements could be dispatched. In addition to the 6000 regulars and 16,000 militia of their new Quebecois "allies", it seemed unlikely that the British would be regaining Quebec any time soon.