After the fall of Tobruk things looked very bad for the British in the Libyan desert. They were falling back whilst being pursued by the Afrika Korps. Mussolini had apparently ordered that his horse be flown out so that he could ride through Cairo in the anticipated victory parade.

The Commander in Chief, Middle East, General Auchinleck had taken direct command of the 8th Army himself. A new defence line was established around El Alamein, an otherwise unremarkable railway siding in the middle of the desert.

Further back in Alexandria and Cairo preparations were made for evacuation.
On the 3rd July Rommel made one last attempt to break the British lines at El Alamein, losing 13 of his last 26 tanks. By the end of the day it was clear that he not going to break through.

The battle settled down as both sides sought to establish positions on the most advantageous ground in the area - mainly around the Ruweisat Ridge.

Cyril Joly1 was commanding a Tank Squadron at the time, who were falling back to the Alamein line:

Again to our astonishment, we very nearly bumped unwittingly into the full Afrika Korps. This time the rear patrols of the right-flank regiment reported that the enemy were bearing down on them coming from the south, where we had seen them go only the previous evening.