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Superior in most aspects to its predecessors, XWA presents the story of the Azzameen family, a family of space traders. The player assumes the role of Ace Azzameen, the youngest of the Azzameen children.
Apart from the usual badges and medals for winning missions - a feature shared by the other games of the X-Wing computer game series - progress is also indicated by the amount of souvenirs collected in Ace's room. There is also a "mail" delivery between missions that helps to evolve Ace's background story while also providing a deeper look into his personal relationships and his family's whereabouts.
XWA is the first game of the series to offer a full voiceover soundtrack and full in-flight dialogue. Flight control is marginally updated from the previous games of the series, allowing the player to link his or her different energy weapons to fire together, as well as the addition of rudder support. Graphics are also overhauled in this game; high resolution textures, more complex models, and full three dimensional cockpits were added. However, the cockpits are not faithful to the other games; indicators and screens are separated from the cockpit, depicted as floating windows as part of the in-flight heads-up display. The player also has three "mission skips" that allow him or her to proceed through the linear storyline without having to complete a particular mission. "Family missions," however, cannot be skipped.
The game's prologue (and tutorial) concerns Ace's "family missions" in which his elder family members and Emkay instruct him in the flying of Corellian transports so that he can begin working for the family.
These missions reveal that the Azzameen family are in heated competition with the Viraxo and are generally sympathetic to the Rebel Alliance. Due to their sympathies, the patriarch of the family, Tomaas Azzameen, smuggles bacta for the Alliance in the aftermath of the Battle of Hoth. This causes them to pay dearly as the Galactic Empire raids their home station for running bacta to an Alliance outpost. The family subsequently seeks asylum with a Rebel task force.
As a Rebel pilot, Ace participates in a variety of missions for the Rebellion while also helping his family fight the Viraxo. During his tour with the Rebel Alliance, he proves himself to be a significant pilot as he participates in missions that uncover new Imperial projects, such as experimental TIE fighters and the second Death Star.
Some events connect the game to the movies Star Wars Episode V: The Empire Strikes Back and Star Wars Episode VI: Return of the Jedi, such as sequences that track the Rebellion's situation after the Battle of Hoth, as well as the theft of the Shuttle Tyderium. The game also concludes with the climactic Battle of Endor. Several events connect to the Shadows of the Empire story, such as a mission to assist Dash Rendar in the capture of the Imperial freighter Suprosa, which carries the plans to the second Death Star.
During the peak of Flight Simulation gaming, and during the first release of X-Wing Alliance, the game was a very popular Multiplayer Dogfighting and Clan-Based Game. The support for the multiplayer aspect was discontinued in 2004 by Microsoft as it was hosted via their Zone Gaming Network. After that, XWA was moved to their Direct Play Lobby, until it was disconnected completely in 2005. Many of the clans that once played the game then went looking for another way to play, and one such solution was Errant Venture, a still-used client lobby for X-Wing Alliance.