There was a massive Latin-Christian response to the Battle of Hattin and the Fall of Jerusalem in 1187, much like when the city of Edessa fell to Zengi in 1144. While the fall of Edessa prompted the launch of the now-called "Second Crusade," the fall of Jerusalem prompted the "Third Crusade." The participation of three of the most significant monarchs of Europe - Frederick Barbarossa, Richard I, and Philip II - gives some indication of the magnitude of the expedition.

The following link provides a number of primary source materials that consider the European reaction: http://legacy.fordham.edu/Halsall/sbook1k.asp#The%20Third%20Crusade

Fortunately for us, the Third Crusade is incredibly well documented and there are a host of documents in translation to consider. The sources from the Internet Medieval Sourcebook are a good place to start. For secondary literature on the topic, any of the overviews of the Crusades from Thomas Madden (The New Concise History of the Crusades), Christopher Tyerman (God's War), Jonathan Riley-Smith (The Crusades: A History), and Jonathan Philips (The Crusades, 1095-1197) will get you started off on the right foot. I'd also recommend, for the perspective of the Muslim peoples of the Levant, Paul Cobb's new book The Race for Paradise: An Islamic History of the Crusades.