More then a year ago I wrote a post where I explained how to set up secure digest authentication for Squid proxy server so passwords would not be sent in plain text to the server when authenticating.
That post was written for squid 2.6 but recently I had to set up the same thing on Squid 2.5 and I found out that the setup was a bit different.
Squid 2.5 is really very old and fewer and fewer will be using it in the future as even Squid 2.6 becomes obsolete with the release of Squid 3.0 .
So if you are considering setting up a new proxy server using squid please use Squid 2.6 and take a look at how to set up digest authentication in squid 2.6
The differences are really minor but here there are listed in case I or someone else needs to still set up squid 2.5 with it.
The first difference is in the way you have to specify the "digest program" auth param.
for squid 2.6 it has to be like this :
auth_param digest program /usr/lib/squid/digest_pw_auth -c /etc/squid/digest_passwd
but for squid 2.5 it has to be :
auth_param digest program /usr/lib/squid/digest_pw_auth /etc/squid/digest_passwd
The second difference is in how the passwords are stored. In Squid 2.6 the passwords are stored securely as an md5 hash but in squid 2.5 they are stored in plain text in this format "username:password" . ( one more reason to make sure /etc/squid/digest_passwd can't be read by anyone other then squid user )
So for squid 2.5 what you gain in security over the network transmission of the password you lose in security at the password storage. This may still be a good deal if your local security is high but there isn't any way you can control the security of the network between you and the proxy server.