Proxy ARP (Address Resolution Protocol) is a technique by which a device on a given network answers the ARP queries for a network address that is not on that network. The ARP Proxy is aware of the location of the traffic's destination, and offers its own MAC address in reply, effectively saying, "send it to me, and I'll get it to where it needs to go." Serving as an ARP Proxy for another host effectively directs LAN traffic to the Proxy. The "captured" traffic is then typically routed by the Proxy to the intended destination via another interface or via a tunnel.
The process which results in the node responding with its own MAC address to an ARP request for a different IP address for proxying purposes is sometimes referred to as 'publishing'. A Proxy ARP Simulation visualizes how a router responds to ARP request on behalf of the target host at different networks. See ARP cache updates at host, router, remote host.
Read more about Proxy ARP: Uses, Advantages, Disadvantages, Further Reading
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