On October 2, 1187, the garrison of Jerusalem handed the city over to Saladin under terms negotiated with Balian of Ibelin, and 88 years of Crusader rule came to an end. It lasted a fortnight. Saladin had already destroyed the field army of the Kingdom of Jerusalem at Hattin on July 4, and what was left in the city was a handful of knights and a large population of refugees.
Balian had been let in to take out his wife and family and had sworn not to stay, then released from the oath because there was nobody else. In the negotiations that followed he threatened to kill the Muslim prisoners, about 5,000 of them, and to destroy the Dome of the Rock and the al-Aqsa mosque rather than see the city stormed. Saladin's price was a ransom: ten dinars for a man, five for a woman, two for a child.
The rest went into slavery. About 15,000 people were not ransomed, and Saladin's brother al-Adil asked for a thousand of them and freed them, and Balian and the patriarch Heraclius paid for several thousand more. The contrast with 1099, when the Crusaders had killed most of the population of the city over two days, was deliberate, and people at the time noted it.
The fall of Jerusalem is what triggered the Third Crusade. Gregory VIII called for it in a bull issued in late October, and Richard I of England, Philip II of France and the Emperor Frederick Barbarossa took the cross. Frederick drowned in Cilicia on the way in 1190. Richard took Acre in 1191 after a siege of nearly two years, and the campaign ended in the treaty of Jaffa in September 1192, which left Jerusalem in Muslim hands and gave Christian pilgrims access to it.
The city stayed under Ayyubid and then Mamluk rule until 1517, apart from a period in the 1220s and 1240s when Frederick II and then the Ayyubid sultans handed parts of it back by treaty. The Latin kingdom never recovered. Its capital moved to Acre, and the last of the Crusader ports fell in 1291.