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Make sure you both let hoi2.exe through Windows Firewall if using Windows XP with SP2. Otherwise, I'd check following things on your place:

- check physical connectivity (cable, hub/switch), does it work? good, let's continue

- are both of you on the same ip subnet? check ip address of your and your mate's computer by typing "ipconfig /all" in the command prompt. Subnet mask must be the same as well as ip address portion defined by the mask. If you don't know what does it mean, I could elaborate on demand.

- are you able to play other games via LAN?

- unblock hoi2 on local firewall on both computers