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There are a couple of reasons to install a separate Oracle client on the same machine as the Oracle database management system (DBMS) and ArcSDE component. One is to avoid having to grant elevated privileges to the SDE operating system user. Beginning with Oracle 10g Release 2, access to ORACLE_HOME is more restricted. Installing an Oracle client under the SDE user account gives the SDE user access to the files in the client ORACLE_HOME without having to grant the SDE user access to the DBMS ORACLE_HOME.
Another reason to install a separate client is to allow ArcSDE to communicate with a release of Oracle that has not been certified. The release of the Oracle client installed must be supported for both the release of ArcSDE and the release of the Oracle DBMS used. For example, if using ArcSDE 9.2 with an Oracle 10.1.0.3 DBMS (which is not a supported configuration), Oracle client 10.2.0.2 can be installed. The Oracle 10.2.0.2 client is supported with ArcSDE 9.2 and Oracle 10.1.0.3 databases.
If you have ArcSDE on a separate server, configure the Oracle client on that machine; a separate client installation on the Oracle server is not necessary.
To install an Oracle client on the same machine as an existing Oracle DBMS (to allow ArcSDE to communicate with the Oracle database), install the client software in the SDE operating system user's account and set the ORACLE_HOME for the client in the SDE user's .cshrc, .bashrc, .profile, or .kshrc file. The type of file used depends on the shell type used.
The steps in the Esri Knowledge Base article listed below can be used to perform the setup. However, since ArcSDE, the Oracle DBMS, and the Oracle client are on the same machine, do not set the TWO_TASK variable.