In tunnel mode, the IP datagram is the payload of a new IP datagram. This mode is used whenever either end of a security association is a gateway. So, if a connection is made between two firewalls, the tunnel mode is always used.

In tunnel mode the outer headers' IP addresses do not need to be the same as the inner headers' addresses. For example, two security gateways can operate an AH tunnel, which is used to authenticate all traffic between the networks they connect together. Hosts are not required to support tunnel mode, but often they do.

The advantages of the tunnel mode are total protection of the encapsulated IP datagram and the possibility of using private addresses. However, there is an extra processing overhead associated with this mode.

Figure 2