blimp:
I think we owe a lot to that fine body of water, the English Channel!! I think it was Hitler that hesitated after Dunkirk, rather than his generals. With hindsight that would have been the time to attack us. Whether he would have suceeded is impossible to say. I am sure he had his pals over here, especially amongst the English aristocracy. We were just lucky we had a bit of sea between us and of course a truly great wartime leader in Winston Churchill.
Hitler thought that the British were the natural allies of the German people and doubtless his sentimental view of us caused him to hesitate. However I think his biggest mistake was in invading Russia. The "blitzkrieg" which had proved so successful in Europe couldn't hope to work over the huge distances involved in attacking the Russians. They ran out of food and supplies and the Russian winter kicked in. I also don't think he expected the poorly equipped Russians to fight like they did. That was what defeated the Nazi's more than anything. War on two fronts.
From Hitler's perspective, he should've thrown his panzer forces against the Dunkirk beachead, at the very least inflicting heavy casualties on the British Expeditionary Force as it was attempting to evacuate, then immediately dropped all of the paratroopers he could into southern England to seize airfields by which they could've been supplied and reinforced by air. Even without disrupting the BEF's evacuation, as the Germans failed to do in reality, a large enough paratrooper force might have been successful because all of the British heavy weapons had been left behind on the beach at Dunkirk.
With that opportunity gone, IMHO "Sea-Lion" wasn't a realistic venture via a cross-Channel amphibious operation, and Hitler really still had hoped to make Britain into an ally or at least a friendly neutral, pressuring the British people to accept a negotiated peace via air attacks and a U-boat blockade--his heart was never in an invasion of the British Isles. (Ironically, British strategic planning in late 1940-41 involved eventually defeating Germany basically via relentless air attacks rather than a cross-Channel invasion of German-occupied Europe.)
Len Deighton's alternate history novel, SS-GB, is set in Britain in '41, following a successful invasion and conquest by Germany... --C.K.