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What does it mean that Java applet runs in web browser? Does it share the same address space as browser? Isn't it created as single process?

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Most modern browsers support plugins, for instance through the NPAPI.

This allows the Java runtime to run inside of the browser process, as a plugin, executing the Java applet.

Whether or not it runs in the same process or not is up to the browser itself; Chrome, for instance, runs every plugin in a separate process, while other browsers only use one process.

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Since Java SE 6u10:

The new way of executing applets has architectural similarities to Java Web Start technology, but tighter browser integration. Applets no longer execute in a Java Virtual Machine (JVM) inside the web browser. Instead, a separate JVM machine process is launched to execute applets. By default, only one JVM machine is launched, but you have the opportunity to launch more than one JVM machine, and you get support per-applet command-line arguments, so you can affect heap size or other requests.

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