Why did the British government initiate a truce with the Irish in 1921?

The British government were finding it increasingly difficult to deal with the type of warfare the Irish were engaging in, (guerrilla warfare) as in their eyes the IRA was just a small "murder gang." The British were reluctant to treat the IRA as genuine combatants and for a long time refused to acknowledge a state of war in Ireland. However, they had no clear policy or response to the situation and the eventual truce was subject to the pressures from military authority.

The war was unwinnable from either side, and the British public were becoming increasingly hostile to the conflict. The level of military engagement required to pacify Ireland was unmanageable and the British public would never stand for it.