Honours Won : UEFA Champions League (2005), UEFA Super Cup (2005), FA Cup (2006), FA Community Shield (2006)
|2005 UEFA Champions League Final starting lineup.|
Spaniard Rafael Benítez took over from Houllier, arriving from Valencia CF with whom he had just won La Liga title for the second time and the UEFA Cup. Liverpool finished a disappointing fifth in the Premier League. The season had a surprising ending, however, as Liverpool won their fifth European Cup final in Istanbul. After eliminating favourites Juventus in the quarter-finals, they beat English rivals Chelsea in the semi-finals, on the strength of a controversial second-leg goal from Luis Javier Garcia Sanz. Many TV replays have been inconclusive as to whether the ball crossed the line although it is widely believed that had the goal not been given Chelsea’s goalkeeper, Petr Cech, would have been sent off for a professional foul on Liverpool striker Milan Baros.
The Reds met the heavily favoured Italian club A.C. Milan in the final. Liverpool, having trailed 3-0 at half time, made a dramatic comeback and scored three goals in the second half forcing extra time. Liverpool went on to win the penalty shoot out with the heroics of goalkeeper Jerzy Dudek.
This Champions League final win ensured that Steven Gerrard stayed with Liverpool, after rumours linked him with a move to Chelsea FC and Real Madrid at the end of the season.
Although they were the current champions Liverpool were in danger of not being able to defend their title. The English’s Leagues high UEFA ranking allows the maximum number of teams, four, to be entered into the Champions League competition. In the 2004-05 season, five English teams had qualified under then existing UEFA guidelines for the Champions League competition: Chelsea, Arsenal, Manchester United, and Everton, who had finished in places first to fourth place respectively in the Premier League, and Liverpool, who had won the competition. UEFA regulations stipulated that the choice of which team to be excluded fell to The Football Association. The FA chose to exclude Liverpool in favour of fourth-place finishers, Everton. This highly-unusual situation was eventually resolved by UEFA, which added Liverpool to the first qualifying round of the 2005-06 event. UEFA created an automatic berth for every subsequent Champions League and UEFA Cup title-holder.
For more details of Liverpool’s entry into the 2005-06 competition, see Liverpool F.C. Champions League qualification 2005-06.
After a solid run through qualifying and the group stage, Liverpool’s defence of the Champions League title ended in the last sixteen in March 2006, being knocked out 3-0 on aggregate by the unfancied Portuguese side, Benfica.
As the UEFA Champions League 2005 winners, Liverpool competed in the 2005 European Super Cup, beating CSKA Moscow 3-1 AET. Liverpool also earned the right as European Champions to represent UEFA in the FIFA Club World Championship 2005 held in Japan. Liverpool met São Paulo in the final where the game was decided by a single goal scored by São Paulo midfielder Mineiro. During the match, three Liverpool goals were ruled offside.
After starting their FA Cup run against Luton with a 5-3 victory, Benitez’s side broke an 85-year jinx  by beating Manchester United 1-0 in at Anfield on 18 February 2006, their first victory over their arch-rivals in the competition since 1921. The quarter final tie, away to Birmingham City F.C., saw what was then Benitez’s highest scoring result with the Reds winning 7-0, this result was also Liverpool’s biggest away win in the FA Cup. On 22 April 2006, Liverpool defeated Chelsea 2-1 in the semi-finals, with John Arne Riise and Luis Garcia scoring to reach the FA Cup final to face West Ham United. This was the 13th time Liverpool had reached an FA Cup final.
In the final they claimed victory against West Ham, drawing 3-3 at full time with captain Steven Gerrard scoring an incredible equaliser in the 91st minute to take them to extra time and then penalties. They went on to win 3-1 on penalties with Pepe Reina saving three out of four penalties. Being the last FA Cup game at the Millennium Stadium, it was fitting that it has been noted as one of the best modern FA Cup finals .
In 2005-06 Liverpool also gathered 82 points in the Premiership  – their highest points total since 1988 and the largest number of points achieved by a team in third position.
Liverpool’s 2006–07 season began with a 2-1 victory over defending premiership champions Chelsea to win the Community Shield.
Although knocked out of the FA Cup and League Cup by back-to-back defeats to Arsenal FC, Benitez guided Liverpool to the 2006-07 UEFA Champions League final after defeating Chelsea 4-1 on penalties in the semi final after a 1-1 aggregate score, once again thanks to Pepe Reina’s heroics both in the match and the shootout of the second leg. Liverpool once again faced AC Milan in a rematch of the 2005 Champions League Final in Athens, Greece on May 23. Liverpool however lost 1-2 despite a last-gasp goal by Dirk Kuyt.