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When is the default-gateway used?

Cisco IOS allows you to configure the ip default-gateway, but most often it looks like this setting is ignored. In fact, the default gateway is only used when an IOS device does not perform IP routing (acts like an IP host), for example, when you configure a Catalyst switch for layer-2 switching ... or when you disable IP routing on a router with no ip routing configuration command. In both cases, the show ip route command (or show ip redirects on some Catalyst switches) displays the default gateway and any ICMP redirects received from directly attached routers:

b2#show ip route
Default gateway is 192.168.0.5

Host Gateway Last Use Total Uses Interface
1.2.3.4 192.168.0.10 0:00 13 FastEthernet0/0

Disabling IP routing on a router makes perfect sense if you use it as a (reverse) terminal server or telnet-to-X.25 gateway.

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