On the morning of the 7th of December, 1797 Athy was the scene of a robbery which was to have serious repercussions for the local people during the following months. The night parcel boat from Dublin docked in the Canal basin on the night of 6th December. Its cargo included 50 stands of arms, 1,000 ball cartridges and accoutrements for 50 men intended for a corp of yeomen infantry in Leighlinbridge, Co. Carlow. At about 3 o'clock on the following morning two men armed with pistols and swords crept up to the boat under cover of darkness. Arousing the boat master Thomas Barry, the conductor Robert Hyland and two crewmen William Moran and James Graham, the armed men held them below deck. In the meantime an unknown number of accomplices smashed open the arms chests and quickly carried away the precious cargo.
At dawn, Captain Erskine set out in pursuit of the raiders from the local army barracks with a party of Dragoons in pursuit of the raiders. Believing that the arms were transferred to another boat on the Barrow and sent to Carlow, he had the military in that town stop and search all canal boats. The arms were never found. It is believed they were hidden in a bog outside Athy to await a planned rebellion.
The Army Commander in Athy R.R. Wilford wrote to General Dundas on 7th December giving an account of the "most extraordinary and alarming circumstances that took place this morning". Suspecting a conspiracy involving those in charge of the boat, he had the master and crewmen arrested and lodged in Athy gaol. In a letter to General Dundas four days later Wilford expressed his belief that "there has been collusion on the part of the master of the boat and probably the keeper of the Canal Stores.....with other persons at present unknown in carrying away the arms". The boatmen were kept under arrest for a number of days and remaining steadfast in their claims of innocence were eventually released.
The anxiety of the loyalists at the success of the daring arms raid was reflected in a letter from Lord Downshire in which he referred to the event as having "made a deep impression in the minds of the well effected" in Edenderry. Even more concerned were the loyalists of Athy and district who were further alarmed by the appearance of a handbill on the streets of their town in January 1798. Copied and forwarded to Dublin Castle on 14th January by Stuart Weldon it called upon the people of Athy to organise.
The United Irishmen of Athy and neighbourhood were active in the area. Information sworn in May 1798 by a local informer indicated that there was sixteen companies of United Irishmen in and around Athy. Their Captains included Denis Devoy, Patrick Kelly, his brother Peter who was a shopkeeper and a namesake of his William Kelly. Meetings were held in Peter Kelly's shop, John Hyland's house near the upper turnpike gate and William Kelly's premises. Patrick Kelly, who was from Kilcoo, was later appointed Colonel in Charge of the Athy men. He was later to write of his experiences of the 1798 Rebellion in his book "The Rebellion of 1798" published in 1842.