It took A LOT of artistic license. King Baldwin did not live in peace with Saladin. As soon as the regency over him was over, he refused to ratify the treaty that his regent had agreed to and began attacking. Saladin did agree to give safe passage at Jerusalem, but it was only after Balian said he would destroy the Muslim sacred sites. That is touched up in the movie, but it wasn't an act of kindness by Saladin as the movie suggests. He wasn't going to give safe passage until Balian made the threat. In addition, the people had to pay a ransom in order to leave (they had 50 days to do it). Those that couldn't pay the ransom were forced into slavery.