Austria had long been opposed to unification of the German states. However, Austrian power declined after 1850, making it unable to take a strong stand against Prussia. The decline came about due to:
Austria had lost key allies and was losing influence in Europe, becoming increasingly isolated.
Austria had long been an ally of Russia. But Austria had refused to help Russia during the Crimean War of 1854-56 against France and Britain.
As a result, they lost a major ally. Russia would most likely stay neutral in any war involving Austria.
Austria was further isolated in 1859 when it fought a war with France and the northern Italian Kingdoms.
As a result, Austria was portrayed as an untrustworthy and weak empire. It was left to sort out its issues with the German states on its own.
Austria struggled to compete with the economic power of the revived Prussia.
Austria could barely compete with the economic benefits of the Zollverein. Many of the German states were involved and Austria was excluded.
Austria’s geographical position meant that it could not trade as easily as Europe’s northern states. The Danube was not as central as the Rhine and southern Europe had not benefited as much from the Industrial Revolution and spread of the railways. In fact, southern Europe was still relatively agricultural.
The poor performance of Austria’s armies in the 1859 war with France emphasised how backward and inefficient their industry and economy were.