Although Detroit's economic value became less important to the British, that community as well as the other western posts became diplomatic bargaining chips as the United States and Britain argued over the implementation of various clauses of the peace treaty. Both sides claimed the other was ignoring provisions in the treaty, and both sides justified not taking actions called for in the treaty, such as turning Detroit over to the Americans, by saying that before they would act the other side must make good on allegedly unfulfilled promises. As the stalemate dragged on, Britain continued to govern Detroit and actually included it in the civil government of Quebec. In 1791, when the British divided Quebec into two provinces, Detroit was placed in "Upper Canada." In 1792 the community participated in its first election--choosing delegates to the British provincial assembly of Upper Canada.

Although the government of Upper Canada included Detroit in its operations, the situation that made it possible for Detroit to remain under British control was changing rapidly. In part, Britain was simply less interested in the community. As noted earlier, Detroit's economic importance to the British was declining dramatically. In fact, the entire British fur-trading enterprise in Canada was declining. With this general loss in fur revenue, the government in London was more willing to divest itself of the expensive and controversial forts on what was technically American soil. As the British government grew more interested in ridding itself of Detroit and other posts, the American government grew strong enough to exercise control over the area both politically and militarily.

The new American government was faced with rival claims from several colonies for the lands west of the Appalachian mountains. On paper, Virginia, New York, Massachusetts, and Connecticut all claimed Detroit. In 1780 states lacking western claims won a historic victory in the Continental Congress by obtaining an agreement in principle that all states would cede western land claims to the new American government and that eventually this remote territory would be made "separate republican states which shall become members of the federal union . . ." This promise was not fully implemented by the necessary legislation in each state until 1786, but it was clear that Detroit would eventually be governed as part of an American federal territory that would some day become part of a new state. In 1785 and 1787 congressional ordinances defined both how the land was to be surveyed and sold to settlers and the political steps that would lead to not less than three nor more than five sections of the old Northwest Territory changing from territorial status to full statehood.

Although politicians in the East had largely settled the political problems that swirled around Detroit and the rest of the Northwest Territory, fundamental issues remained. The weak government founded under the Articles of Confederation lacked the military power to send an army into the Northwest Territory. This military limitation was critical. The territory's Indian tribes were violently opposed to the European settlement envisioned by the Congressional acts of 1785 and 1787. The British, whose army still occupied the land, fanned the flames of Indian opposition for their own purposes and gave them regular gifts. Without an effective military, the American government had few tools to deal with hostile Indians supported by the British army.

Armed only with diplomats, the American government talked of peace to both the British and the Indians. Frontiersmen, however, wanted land. With or without government sanction, they began to pour across the Ohio River. By 1789 an undeclared war had begun in the territory as settlers organized militia units to battle Indians bitterly resisting white encroachment on their land. It is not surprising that Detroit served as a depot from which British arms and supplies could be placed in the hands of the Indians battling the settlers. Detroit, however, was not as central to this drama as it had been during the American Revolution. The British had established locations in Ohio, in order to bring supplies even closer to their Indian allies.

The American government, established by the newly adopted Constitution of 1789 and empowered to levy taxes and raise armies, quickly sent military forces west to deal with the war raging on the "frontier." However, two separate American armies, one under the command of Josiah Harmar and the other commanded by Arthur St. Clair, both met defeat at the hands of the British-supported Indians. It was only in August 1794 at the Battle of Fallen Timbers, which took place a few miles from Toledo, Ohio, that "Mad" Anthony Wayne won the military victory the Americans needed to make the Indians consider peace and convince the British to evacuate the Northwest.

From the Indian perspective Fallen Timbers was important not merely because they had lost, but because it had occurred only a few miles from the British stronghold at Perrysburg. The Indians had expected the British soldiers to aid them, but the British had remained within their stockade. Britain was again at war with France, and provoking a possible conflict with the United States over what in London appeared to be a provincial conflict was unthinkable. Although this policy made sense in London, the Indians at Detroit and elsewhere concluded that they could not rely on the British. Perhaps it was time to come to some understanding with the Americans.

That understanding was reached in 1795. General Wayne called the Indian tribes to Greenville, Ohio, where a peace treaty was negotiated and signed. One provision of the treaty ceded sixteen small areas of land to the Americans to serve as trading posts. Among these pieces of land transferred from Indian to American control was Detroit, along with a six-mile-wide strip of land adjacent to the water running from the River Raisin (Monroe) to Lake St. Clair.