From 2694 to 2698, The Rebellion held the initiative thanks to a major opening victory. Rebel fortunes suffered a major reverse in 2698 when a coordinated attack on the flagship disrupted the chain of command, and despite a victory at the Battle of Node 17, The Rebellion had been vastly weakened and had lost the civil war by 2700.
The civil war would shape the future of the galaxy in unprecedented ways.
The Federation-Mantis War
"For Aegis first hatred was not the Mantis, but the Federation... And he loathed it for what? For its tolerance! He wanted billions of Humans to rule with an iron hand an empire of billions ‘inferiors’— Engi, Mantis, Rockmen, Zoltan, Slug." ― Anonymous Historian, Circa 2304Although Human Supremacy had existed for centuries, The movement had intensified during the Federation-Mantis War, During which Xenophobia within the Federation reached its peak. Many Human Supremacists volunteered to join the Federation army, And this led to Human Supremacists being over-represented in the army. - even though less than a tenth of the Humans were Supremacist, The Army was over one-third human supremacist.
The head of the Federation Fleet at the time, Admiral Aegis, Was also a noted Human supremacist. Opinion polls showed that three-fifth of soldiers in the Federation army felt disillusioned with the current Federation Cabinet, And some had instead shifted their loyalty to Aegis personally.
On 18 July 2673, The Federation and the Mantis signed the Alsace Accords, Ending hostilities. Many Human supremacists opposed the peace, And the Federation narrowly avoided civil war by defeating a coup d'état on 17 July 2673 (Known by its numeronym 17J) and purging the ringleaders. The ringleaders had asked Aegis to join them, But he was sick and thus did not respond, And was unaware of the coup until it was already over.
March 6 incident
On 6 March 2694, Several Federation ships led an unauthorized raid into mantis territory, Plundering several planets and destroying several ships. After receiving a complaint by the Mantis, The Federation Government launched an investigation and found that most of the officers responsible were Human supremacists.
In April, Members of the Federation government secretly decided to pass a law prohibiting human supremacy in the Federation army, Which they would enact on the bi-annual Federation meeting on 1 June 2694. One of the politicians had Human Supremacist sympathies, And contemplated whether or not to warn Admiral Aegis of the impending purge, But was faced with indecisiveness, And it was not until the day before the purge that he panicked and decided to warn Aegis.
Course of the war
Outbreak (31 May - 30 June 2694)
The Federation Civil War started on 31 May 2694 when the Rebellion, a human supremacist group, attacked the Federation port of New Hampshire. The Rebels, Led by Admiral Aegis followed up their victory by starting the Aegis Offensive, and the Federation was unable to prevent them from taking control of a third of federation territory.
The Rebels in the initiative (1 July 2694 - 3 March 2695)
After massive opening victories, The Federation was unable to prevent Aegis from fulfilling his life-long dream of besieging New Earth, which he viewed as symbolizing the degeneracy of the Federation. In the ensuing Siege of New Earth, the planet lost 75% of its population.
A few weeks after the start of the Siege of New Earth, The Federation launched an abortive counterattack, Operation Peridot, which ended up disintegrating due to major intelligence failures by Commander Gregor.
Admiral Aegis, believing the Federation to have exhausted its offensive capabilities in the Operation Peridot, Convinced Commander Terest to launch an offensive, The Terest Offensive, To try and "mop up whatever forces the Federation still has left outside of New Earth".
Federation counteroffensive (4 March - 1 August 2695)
The Terest Offensive, While initially successful against The Federation Fleet (who were still recovering from earlier Rebel victories), soon bogged as each victory cost the Rebels more ships and deaths. Soon after, the Federation regrouped, and launched the Tully Offensive which drove them within striking distance of New Earth. With this newfound advantage, the Federation command devised Operation Salamander, which would break through weak spots in the Rebel lines. However, this plan leaked to the Rebels, who reinforced the weak spots and were thus able to incur heavy causalities upon the Federation and repel the offensive.
Stalemate (2 August - 31 December 2695)
Operation Salamander was a disaster for the Federation. Such a disaster was it, that Admiral Tully believed that the Federation would disintegrate within a year. However, the Rebels proved unable to follow up on their victory, as they had exhausted 90% of their fuel in their defense. In order to renew the war effort, The Rebels needed to capture the rich oil fields of New Earth. In the ensuing 3-month long Battle of the Catalaunian Gas Field, the Rebellion aquired the resources needed to continue the war effort.
Renewed Rebel advance (1 January - 31 December 2696)
After acquiring the necessary resources, The Rebellion drove the Federation to the brink of collapse in the Great Offensive of 2696. It drove the Federation back to a single sector, The Last Stand, and the withdrawal of forces to defend it left hundreds of sectors unoccupied. This caused many sectors to form militias to protect themselves from the Rebellion, and those Militias still survive today, albeit merged under one banner as the Local Defence Militiamen. The Zoltan, fearful that the Rebellion would treat their race worse than the Rocks had during their crusade, closed off their borders and strictly monitored any and all ships near their sectors' borders in an effort to keep the Rebellion. To discourage the Rebellion further, the Zoltan exited the Federation and declared their neutrality.
Last stand and Fall of the Flagship (1 January - 22 March 2697)
The war ended with the Galaxy's seven races uniting together to fight the Rebellion in a climactic battle in the Orion system- otherwise known as The Last Stand. The Hero of the Federation, captaining an old kestrel, marshaled the races into fighting with the Federation against a bloodthirsty Rebellion, hell-bent on exterminating aliens in a mass genocide in all of known space. In the ensuing events, known to Rebels as the Fall of the Flagship and to the Federation as the Miracle of 13 March, the Rebel command collapsed, the Rebel fleet disintegrated and Admiral Terest barely escaped after fighting a fierce rearguard battle, the Battle of Node 17.
The Federation was left with most of its leadership killed off or dead, and the new senate, formed in the Orion system (the new Capitol), was mostly businessmen, their puppets, or incompetent buffoons. Those who were competent were normally outspoken due to their comparatively small numbers. Corruption was, and still is, rife throughout the Federation. The Rebellion's aggressive takeover of beacons has resulted in billions of citizens being homeless or jobless. On some worlds the Federation is hard-pressed to provide even basic public services, and is struggling to recover. However, worlds in sectors that were hit relatively less enjoy the same or similar standards of living compared to pre-war standards. It also has resulted in a massive power gap forming. Corporations have taken over multiple sectors meant to be controlled by the Federation, and are the de-facto leaders. Some unoccupied sectors are the site of conflict between the newly militant and expansionist Zoltan, the Federation, and the Coalition, in a massive three-way conflict. The Rebellion was driven back to its strongholds and sectors they controlled- where they dug in and waged a defensive war, all the while building up forces to make another push. It could be said they're in a stronger position now than they were during the rebellion- a tough nut holding the Federation back, biding their time.
This war created an industrial boom, with more jobs due to increased orders for ships, materiel etc. for the Federation’s war economy. As usual with industrial booms, some people benefitted and others did not. The number of unemployed decreased, but the minimum wage did not change at all. The big companies of the era, such as Ares Weapons Industries, Cygnus Security Solutions, or as it was known then Cygnus Energy Weapons, Tandili StarDrive and the Rhea Mining Company, benefitted from the war and eventually developed monopolies on their exports. However, the war did not benefit parts of the economy not necessary for the war effort. The war raised prices on materials like aluminium and iron for ‘non-essential industries’ which were primarily for civilians, limiting economic growth outside of the defence, agriculture and mining industries. The Federation also had to tax its citizens more in order to fund the war, and eventually ended up borrowing from banks in order to pay for the war. The Federation, at the war's conclusion, was left in massive debt, with limited economic growth and with more economic disparity.