How it all started:
Because Muhammad never named an heir, the death of the Prophet led to highly charged factional infighting to decide the future of the umma. One camp comprised the members of noble Arabian families, many of whom came to Islam late, and they became known as the ahl al-Sunna, or the people of law or tradition. The other group believed that Muhammad's successor should come from the prophet's own house, starting with the messenger of God's son-in-law and cousin, Ali. They were known as the faction of Ali, shi'at Ali.
When the Caliphate finally fell to Ali, disaster soon followed. Mu'awiya, the governor of Syria, outwitted Ali in a famous battle at Siffin (657) by having his men hoist copies of the Quran on their spears causing Ali's forces to stop in their tracks. Ali agreed to mediation and the man who would become known as the first of the Shiite imams was assassinated shortly after by disenchanted former associates.
Mu'awiya moved the Caliphate to Damascus where he founded the Umayyad dynasty (661-750). He was succeeded by his son Yazid, who cut down Ali's second son Hussein at Kerbala in 680, a seminal event in Shia history, and commemorated each year with self-lacerating enthusiasm during the Ashura festival. Thus, the Shiites, celebrating their suffering, sacrifice and martyrdom, became the perpetual also-rans of Islamic history.