Military Aviator here. The easiest way to imagine it is that it’s a password. The Air Defense Artillery (ADA) sends out a “question” code to the aircraft. The aircraft receives the question code and sends back an answer code.
The ADA has a list of codes that are “ok” to get back. If the code that the aircraft sends back isn’t on that “OK” list, it’s not marked as friendly. I’m not 100% sure how ADA distinguishes between marking something as “Unknown” vs “hostile”.
Oh, and before anyone asks, as far as I know, most civilian aircraft that are going anywhere near combat zones have transponders that go through the air screaming “I’M A CIVILIAN! DON’T SHOOT ME!” so ADA knows to ignore them. And countries that try to hide their warplanes by having them use civilian frequencies are committing war crimes. Very, very easily provable war crimes.
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