Elizabeth I: The Golden Age

As military men readied the Armada in Lisbon, diplomats negotiated elsewhere. We can track some of their progress (or lack thereof) through a history of the Queen's reign (written by William Camden  with the assistance of Elizabeth's chief advisor, William Cecil) and a letter which Dr. Valentine Dale (a British diplomat) sent to Sir Francis Walsingham (the Queen's secretary).

In Flanders to negotiate with Alexander Farnese (the Duke of Parma), Dr. Dale was not easily intimidated. It is said that when Parma once suggested they negotiate in French (because Elizabeth called herself Queen of France), Dale replied they should speak Hebrew (since Philip II claimed to be King of Jerusalem). Frank discussions,  however, did not avert the Armada's departure from Lisbon.

On the 25th of July, while the Spanish fleet was sailing toward the coast of Britain, diplomats were still trying to avoid war. Dale sent a progress letter to Walsingham. He wasn't hopeful that issues could be worked out.

Camden's history reports that negotiations finally broke down when the Armada was in sight of England's shores:

With such answers as these [i.e., part of the ongoing discussions] they dallyed [dallied] with the English till the Spanish fleete [fleet] was come to the coast of England and the thundering of the ordinance was heard from the sea ... Thus came this treaty to nothing, undertaken by the Queene (as the wiser sort have judged) to divert the Spanish fleete, and continued by the Spanyard [Spaniard] to the end to surprise England unawares and unprovided. So as they seemed on both sides to sew the foxes skinne [skin] to the Lions. (Camden, Annales Rerum Angliae et Hiberniae Regnante Elizabetha, 1588, Section 14)

When Spanish ships were first sighted by people in southwestern England, beacon lights helped to quickly spread the word. The country's young men, at their own expense, voluntarily joined the defense: 

... the Spanish fleete sailed forward, the English fleete following it close at the heeles [heels]. But so farre [far] was it from terrifying the sea-coast with the name of Invincible, or with the terrible spectacle, that the youth of England with a certain incredible alacrity (leaving their parents, wives, children, cousins, and friends, out of their entyre [entire] love to their Country) hires shippes [ships] from all partes at their owne private charges, and joyned [joined] with the fleet in great number ... (Camden, Annales Rerum Angliae et Hiberniae Regnante Elizabetha, 1588, Section 24)

Walter Raleigh, one of the Queen's favorites, was among the young men called to protect their country. With his cousin, Sir Richard Grenville,  he personally inspected all the coastal fortifications in the West Country of Devon and Cornwall.  He was in Portland when the Armada was first sighted.