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The Identify Friend and Foe list is a means of tracking your relationships with other players, characters, facilities, etc., and it is used where appropriate to automatically issue commands to NPCs or other entities that can participate in combat.
The lookup rules to establish your opinion of another entity are pretty complicated but follow a simple general principle: personal preferences take top priority, followed by faction preferences, followed by default fallbacks if there are no matching rules. All players will inherit their faction's IFF rules without the ability to opt-out, but rules may be overridden with their personal lists.
The core lookup step in IFF is simple: given an entity E to identify as friend or foe from a another entity's perspective O, the following steps are taken:
The parent sequence to find the next IFF list to check has three components: if the entity is a character, the next list is his faction's list, if he has one. If the entity is an "asset"--that is, a non-player entity that is owned by another entity (such as a droid or NPC), then the next list to check is that of its owner. Finally, factions do not have a fallback list; if they do not match an entity then the result will be determined by the next step in the lookup process.
The complete lookup sequence can be broken into multiple steps as outlined below, with each step either producing a definitive status or proceeding to the next step if there was no matching rule. Note that E represents the target entity whose status we want to find, and O represents the list owner who is providing a status.
You may add entries to your IFF list in two ways. From the Character Sheet you may access the IFF list page, which will show your complete list as well as a prompt to add a character or faction by name. Alternatively, from the position scanners page, you may click the icon next to any entity and select a new IFF status for that entity specifically.
Faction IFF lists are always visible to all members of a faction, as they affect them all. However, the manage IFF privilege is required to add or remove entries from the faction IFF.
You may only attack entities that have been explicitly marked as enemies on your IFF. For convenience, when you elect to attack a squad, it will be automatically added to your IFF and combat will proceed as normal. You will also be automatically added as an enemy to the IFF of the squad you attacked and its owner; this will provoke automatic retaliation from NPCs. The only exception is that if you cannot add them to your IFF due to a conflicting timed entry, combat will be cancelled.
In addition to manually specified IFF statuses, your IFF may change automatically under several circumstances. The first is combat as described above. The second is a "timed IFF entry" which will be created when certain force powers are used. A timed IFF entry cannot be modified until it expires, and you are forced to respect it with regard to client-based in-game actions. This means that if an enemy force user charms you, you cannot attack him until the charm duration expires. It does not extend to other interactions (i.e. you are not required to comply with that player's demands on your inventory, faction allegiance, etc.). The same rule applies to NPCs and other entities, so a charmed NPC will not attack the responsible player.
The expiration timer will be shown in place of a removal button on the IFF list page to indicate how long an entry is fixed to your IFF.