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Does IPSec work below or above the network(IP) layer? If below then how does a router read the destination IP address which is encrypted inside the IPSec encryption?

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  • IPSec Tunnel Mode.

IPSec is above the IP layer, but inside the encrypted IPSec packet, there is the original IP and payload.

IPSec wraps the original packet, encrypts it, adds a new IP header and sends it to the other side of the VPN tunnel.

  • IPSec Transport Mode

Now IPSec only protects the data, and uses the original IP header, just changing the protocol field.

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