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I'm wondering if I Alice and Bob are both connected to a WiFi router through a WPA2 secured connection, will Alice be able to sniff the traffic of Bob and vice versa? Or does every user has his own encrypted connection with the WiFi router, since it says "pre-shared key".

How is it with older encryptions like WEP?

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A little bit of both. With pre-shared key both Alice and Bob knows the same pass phrase that is used by WPA. When they connect to the access point they will each negotiate a separate "temporal" key that is private and that key will be used to encrypt the traffic. This means that Alice cannot decrypt Bobs traffic (unless she hacks the system by some other means) and vice versa.

However, if Alice can listen when Bob connects for the first time then she can utilize her knowledge of the shared key (the pass phrase) to figure out which temporal key Bob got and she can then decrypt his traffic.

Wireshark, for instance, can do this decryption for you automatically as long as it has access to the first 4 data packets of the connection.

Note that this is by design, the temporal key is not there to provide privacy between stations connected to the same ESS.

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This seems to say it better than i could, so i reffer you there: http://seclists.org/pen-test/2005/Nov/73

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