Assess the greatest challenge President Lincoln faced in the first year of his Presidency.

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I tend to think that Lincoln's most pressing problem in his first year of office had to be what to do with the South.  By the time Lincoln had settled into his first year as being President, the South had already made active moves to confront the new President.  They had seceded from the Union.  Seven Southern states had openly declared their intent to no longer be a part of the nation with the election of Lincoln. These seceding states had elected Jefferson Davis as their President. Lincoln's primary issue and greatest challenge was how to address the South outside of war.  Since the Civil War is so much a part of American History, it is difficult to comprehend that the President in his first year really did seek to find another route to deal with the South other than war.  In his Inaugural Address, this becomes clear.  The President wanted to find another way to deal with this thorny issue outside of open declaration of war against the South:

In your hands, my dissatisfied fellow-countrymen, and not in mine, is the momentous issue of civil war. The Government will not assail you. You can have no conflict without being yourselves the aggressors. You have no oath registered in heaven to destroy the Government, while I shall have the most solemn one to 'preserve, protect, and defend it."

When Lincoln says that "we are not enemies, but friends," it becomes clear that from the outset of his Presidency, he understood that his greatest challenge was how to deal with the South outside of total declaration of war.  It was a challenge that forced his hand with the issue of Fort Sumter and the eruption of tensions leading to the Civil War.

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