Rowan Tree and Red Thread

Our role-playing group got together for another session last night. We're in the middle of a long-running campaign based on the misadventures of a group of superpowered spies working for Sir Francis Walsingham, Elizabeth I's spymaster and member of the Privy Council. It's set a few years before the Spanish Armada, and involves a lot of unsavory work being carried out by the PCs in the name of the Queen and the security of the realm.

Currently the PCs are embroiled in a meandering plot revolving round the actions of a necromancer who's attacked and destroyed the Ghost Watch, a group of spirits recruited by one of the PCs (himself a ghost) to defend the grounds of Hampton Court and the person of the Queen when she's in residence. This fellow has also slain two clairvoyants working for the spy ring the PCs are involved with, and attacked an Italian sorcerer the PCs hired to track down the necromancer.

This whole storyline seems to have gone on too long to me, but I'm finding it difficult to reach a satisfying conclusion. There are certain facts established by the play so far that make it difficult to wrap things up with a big fight (the traditional ending for many a long-running baddie in RPGs), as the fellow is damnably hard to hurt, or even lay hands on. There are some crucial links to another villain, who's been lurking in the background for ages, that I thought were well flagged but don't seem to have registered with the players. I'm afraid I've made the players gun-shy, as their early encounters with him were threatening and dangerous, so now they tend to flee whenever he makes an appearance. I like to let the players' preferences lead me as a GM; I try to encourage them to narrate, to suggest and to direct things, but for this storyline at least, they've ended up being almost entirely reactive. What do I need to do to shake them into action, I wonder?