Deakin promised to extend "the utmost fair play" to the new Watson Government, and allowed H. B. Higgins to join the government as attorney-general.
The Liberal Protectionists were divided between radicals seeking an alliance with the ALP and anti-socialists seeking an alliance with the Free Traders; Reid continued as leader of the opposition.
Despite the party's lack of a majority, the ALP caucus did not immediately authorise Watson to seek an alliance, and Deakin instead negotiated a draft agreement with the Free Traders in which Reid would become prime minister.
Deakin himself would remain party leader but retire to the backbenches, as he did not wish to be bound by cabinet solidarity.
The Liberal Protectionists rejected the agreement, according to John Forrest out of reluctance to serve in a ministry Deakin did not lead.

Watson attempted to form an alliance with the Liberal Protectionists in June 1904, but was rebuffed.
Deakin felt that the power of the Protectionists would be diminished by Labor's party discipline.
He elaborated on his decision-making in an August speech to the National Political League, a newly anti-socialist organisation in Ballarat.
His speech did not attack the government on policy grounds but condemned the ALP's principles of caucus solidarity and organisational control over the parliamentary party.
He saw himself as a progressive liberal torn between conservative obstructivism on one hand and Labor's materialist collectivism on the other.
Two days later The Age, edited by his friend David Syme, published a scathing editorial calling his speech "transcendental musings" and stating he had "lost himself in the clouds amongst politico-philosophical questions" instead of offering substantive leadership.
This led to a major falling-out between the two, with Deakin writing to Syme that he had "been more deeply upset by this incident than by any during my political life".

The Watson Government fell less than two weeks after Deakin's speech in Ballarat, which may have been taken by Reid as a cue to challenge the status quo.
While debating the revived Conciliation and Arbitration Bill, a majority of the Liberal Protectionists joined with the Free Traders in opposing a procedural motion on an amendment.
Watson took the vote as a motion of no confidence and resigned.
Many ALP members felt betrayed by Deakin, and Billy Hughes accused him of hypocrisy in speeches which he later told Atlee Hunt had been deliberately provocative.
Deakin in response made personal attacks on Hughes, notably comparing him to an "ill-bred urchin one saw dragged from a tart shop kicking, screeching and scratching".
He eventually apologised in the House for his reaction.
Deakin declined to join the Reid Government, but lent his support and encouraged Protectionists (including his former treasurer George Turner) to accept ministerial posts; others within the party joined the crossbench.
He and Reid agreed to a "fiscal truce" in which the issue of the tariff would not be raised until the next election.

Deakin maintained an "enigmatic public silence" on the Reid Government's actions, particularly during the long parliamentary recess from December 1904 to June 1905.
During this time he seriously considered leaving politics.
He had been engaged to write monthly anonymous articles for the National Review, in addition to his weekly articles for the Morning Post.
However, his primary interest was in religion, particularly the role of the preacher.
He met with Salvation Army founder William Booth on a number of occasions, even chairing one of Booth's meetings at the Royal Exhibition Building.
In his notebooks he drafted sermons and "weighed the religious against the political life, the preacher against the legislator, and both against the ultimate purpose of existence".
Late in 1904, Deakin purchased 7 acres (2.8 ha) at Point Lonsdale.
He named the property "Ballara" and moved a wooden house onto the land, which served as a holiday home for the rest of his life.
Deakin promised to extend "the utmost fair play" to the new Watson Government, and allowed H. B. Higgins to join the government as attorney-general. The Liberal Protectionists were divided between radicals seeking an alliance with the ALP and anti-socialists seeking an alliance with the Free Traders; Reid continued as leader of the opposition. Despite the party's lack of a majority, the ALP caucus did not immediately authorise Watson to seek an alliance, and Deakin instead negotiated a draft agreement with the Free Traders in which Reid would become prime minister. Deakin himself would remain party leader but retire to the backbenches, as he did not wish to be bound by cabinet solidarity. The Liberal Protectionists rejected the agreement, according to John Forrest out of reluctance to serve in a ministry Deakin did not lead.
Watson attempted to form an alliance with the Liberal Protectionists in June 1904, but was rebuffed. Deakin felt that the power of the Protectionists would be diminished by Labor's party discipline. He elaborated on his decision-making in an August speech to the National Political League, a newly anti-socialist organisation in Ballarat. His speech did not attack the government on policy grounds but condemned the ALP's principles of caucus solidarity and organisational control over the parliamentary party. He saw himself as a progressive liberal torn between conservative obstructivism on one hand and Labor's materialist collectivism on the other. Two days later The Age, edited by his friend David Syme, published a scathing editorial calling his speech "transcendental musings" and stating he had "lost himself in the clouds amongst politico-philosophical questions" instead of offering substantive leadership. This led to a major falling-out between the two, with Deakin writing to Syme that he had "been more deeply upset by this incident than by any during my political life".
The Watson Government fell less than two weeks after Deakin's speech in Ballarat, which may have been taken by Reid as a cue to challenge the status quo. While debating the revived Conciliation and Arbitration Bill, a majority of the Liberal Protectionists joined with the Free Traders in opposing a procedural motion on an amendment. Watson took the vote as a motion of no confidence and resigned. Many ALP members felt betrayed by Deakin, and Billy Hughes accused him of hypocrisy in speeches which he later told Atlee Hunt had been deliberately provocative. Deakin in response made personal attacks on Hughes, notably comparing him to an "ill-bred urchin one saw dragged from a tart shop kicking, screeching and scratching". He eventually apologised in the House for his reaction. Deakin declined to join the Reid Government, but lent his support and encouraged Protectionists (including his former treasurer George Turner) to accept ministerial posts; others within the party joined the crossbench. He and Reid agreed to a "fiscal truce" in which the issue of the tariff would not be raised until the next election.
Deakin maintained an "enigmatic public silence" on the Reid Government's actions, particularly during the long parliamentary recess from December 1904 to June 1905. During this time he seriously considered leaving politics. He had been engaged to write monthly anonymous articles for the National Review, in addition to his weekly articles for the Morning Post. However, his primary interest was in religion, particularly the role of the preacher. He met with Salvation Army founder William Booth on a number of occasions, even chairing one of Booth's meetings at the Royal Exhibition Building. In his notebooks he drafted sermons and "weighed the religious against the political life, the preacher against the legislator, and both against the ultimate purpose of existence". Late in 1904, Deakin purchased 7 acres (2.8 ha) at Point Lonsdale. He named the property "Ballara" and moved a wooden house onto the land, which served as a holiday home for the rest of his life.
Alfred Deakin