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The main reason was that Bernard Freyberg - The Allied Commander in the field lost his nerve and withdrew the New Zealand Divisions from around Maleme Airfield that German Paratroopers secured allowing the 5th Mountain Division to be flown in.
But it is important to not be overly critical of Freyberg- Crete was in a bad state to be defended
The allies had very few anti-aircraft guns, only one battery for the entire Island.
The allies, especially the Greeks were very low on heavy equipment having been recently evacuated from the mainland. The Greeks also suffered from ammunition shortages, and could not be resupplied by the British as they had a different calibre of gun.
The Greek small arms were also pre WW1 models, such as the St. Étienne Mle 1907 machine gun and the gras rifle from 1874!
The British did have 85 artillery pieces and modern machine guns such as the Bren. They also had 25 tanks. But they were short of universal carriers needed to move troops around quickly (which would be needed to counter Para drops)
On the first day the Germans targeted too many objectives - resulting in them taking nothing of significance other than hill 107 overlooking Maleme Airfield.
German and Italian Amphibious landing were also severely hampered by the Royal Navy`s Force C.
On the second day the Germans concentrated on Maleme Airfield, took it and forced the allies to Evacuate.
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