diff --git a/src/ejabberd.erl b/src/ejabberd.erl
index 0ebadc358..40d0bc448 100644
--- a/src/ejabberd.erl
+++ b/src/ejabberd.erl
@@ -10,14 +10,19 @@
 -author('alexey@sevcom.net').
 -vsn('$Revision$ ').
 
--export([start/0]).
+-export([start/0, init/0]).
 
 start() ->
+    spawn(?MODULE, init, []).
+
+init() ->
     register(ejabberd, self()),
     {A1, A2, A3} = now(),
     random:seed(A1,A2,A3),
     ok = erl_ddll:load_driver(".", expat_erl),
     Port = open_port({spawn, expat_erl}, [binary]),
+    db_init(),
+    ejabberd_auth:start(),
     ejabberd_listener:start(),
     loop(Port).
 
@@ -27,3 +32,7 @@ loop(Port) ->
 	_ ->
 	    loop(Port)
     end.
+
+db_init() ->
+    mnesia:create_schema([node()]),
+    mnesia:start().
diff --git a/src/ejabberd_auth.erl b/src/ejabberd_auth.erl
new file mode 100644
index 000000000..3a579a41b
--- /dev/null
+++ b/src/ejabberd_auth.erl
@@ -0,0 +1,122 @@
+%%%----------------------------------------------------------------------
+%%% File    : ejabberd_auth.erl
+%%% Author  : Alexey Shchepin <alexey@sevcom.net>
+%%% Purpose : 
+%%% Created : 23 Nov 2002 by Alexey Shchepin <alexey@sevcom.net>
+%%% Id      : $Id$
+%%%----------------------------------------------------------------------
+
+-module(ejabberd_auth).
+-author('alexey@sevcom.net').
+-vsn('$Revision$ ').
+
+%%-compile(export_all).
+%%-export([Function/Arity, ...]).
+
+-behaviour(gen_server).
+
+%% External exports
+-export([start/0, start_link/0, set_password/2, check_password/2]).
+
+%% gen_server callbacks
+-export([init/1, handle_call/3, handle_cast/2, handle_info/2, terminate/2]).
+
+-record(state, {}).
+
+-record(passwd, {jid, password}).
+
+%%%----------------------------------------------------------------------
+%%% API
+%%%----------------------------------------------------------------------
+start() ->
+    gen_server:start({local, ejabberd_auth}, ejabberd_auth, [], []).
+start_link() ->
+    gen_server:start_link({local, ejabberd_auth}, ejabberd_auth, [], []).
+
+%%%----------------------------------------------------------------------
+%%% Callback functions from gen_server
+%%%----------------------------------------------------------------------
+
+%%----------------------------------------------------------------------
+%% Func: init/1
+%% Returns: {ok, State}          |
+%%          {ok, State, Timeout} |
+%%          ignore               |
+%%          {stop, Reason}
+%%----------------------------------------------------------------------
+init([]) ->
+    mnesia:create_table(passwd,[{disc_copies, [node()]},
+				{attributes, record_info(fields, passwd)}]),
+    {ok, #state{}}.
+
+%%----------------------------------------------------------------------
+%% Func: handle_call/3
+%% Returns: {reply, Reply, State}          |
+%%          {reply, Reply, State, Timeout} |
+%%          {noreply, State}               |
+%%          {noreply, State, Timeout}      |
+%%          {stop, Reason, Reply, State}   | (terminate/2 is called)
+%%          {stop, Reason, State}            (terminate/2 is called)
+%%----------------------------------------------------------------------
+handle_call(Request, From, State) ->
+    Reply = ok,
+    {reply, Reply, State}.
+
+%%----------------------------------------------------------------------
+%% Func: handle_cast/2
+%% Returns: {noreply, State}          |
+%%          {noreply, State, Timeout} |
+%%          {stop, Reason, State}            (terminate/2 is called)
+%%----------------------------------------------------------------------
+handle_cast(Msg, State) ->
+    {noreply, State}.
+
+%%----------------------------------------------------------------------
+%% Func: handle_info/2
+%% Returns: {noreply, State}          |
+%%          {noreply, State, Timeout} |
+%%          {stop, Reason, State}            (terminate/2 is called)
+%%----------------------------------------------------------------------
+handle_info(Info, State) ->
+    {noreply, State}.
+
+%%----------------------------------------------------------------------
+%% Func: terminate/2
+%% Purpose: Shutdown the server
+%% Returns: any (ignored by gen_server)
+%%----------------------------------------------------------------------
+terminate(Reason, State) ->
+    ok.
+
+%%%----------------------------------------------------------------------
+%%% Internal functions
+%%%----------------------------------------------------------------------
+
+check_password(Jid, Password) ->
+    F = fun() ->
+		case mnesia:read({passwd, Jid}) of
+		    [E] ->
+			E#passwd.password
+		end
+        end,
+    case mnesia:transaction(F) of
+	{atomic, Password} ->
+	    true;
+	_ ->
+	    false
+    end.
+
+
+set_password(Jid, Password) ->
+    F = fun() ->
+		case mnesia:read({passwd, Jid}) of
+		    [] ->
+			New = #passwd{jid = Jid, password = Password},
+			mnesia:write(New);
+		    [E] ->
+			New = E#passwd{password = Password},
+			mnesia:write(New)
+		end
+        end,
+    mnesia:transaction(F).
+
diff --git a/src/ejabberd_c2s.erl b/src/ejabberd_c2s.erl
index 251f32570..518f5a488 100644
--- a/src/ejabberd_c2s.erl
+++ b/src/ejabberd_c2s.erl
@@ -99,10 +99,21 @@ wait_for_stream(closed, StateData) ->
 
 wait_for_auth({xmlstreamelement, El}, StateData) ->
     case is_auth_packet(El) of
-	{auth, {U, P, D, R}} ->
+	{auth, ID, {U, P, D, R}} ->
 	    io:format("AUTH: ~p~n", [{U, P, D, R}]),
-	    % TODO
-	    {next_state, session_established, StateData};
+	    case ejabberd_auth:check_password(U, P) of
+		true ->
+		    {next_state, session_established, StateData};
+		_ ->
+		    {xmlelement, _, _, SubTags} = El,
+		    Err = {xmlelement, "iq",
+			   [{"id", "0"}, {"type", "error"}],
+			   SubTags ++ [{xmlelement, "error",
+					[{"code", "404"}],
+					[{xmlcdata, "Unauthorized"}]}]},
+		    send_element(StateData#state.sender, Err),
+		    {next_state, wait_for_auth, StateData}
+	    end;
 	_ ->
 	    {next_state, wait_for_auth, StateData}
 end;
@@ -202,6 +213,9 @@ sender(Socket) ->
 send_text(Pid, Text) ->
     Pid ! {text, Text}.
 
+send_element(Pid, El) ->
+    send_text(Pid, xml:element_to_string(El)).
+
 new_id() ->
     io_lib:format("~p", [random:uniform(65536*65536)]).
 
@@ -213,7 +227,9 @@ is_auth_packet({xmlelement, Name, Attrs, Els}) when Name == "iq" ->
 		[{xmlelement, "query", Attrs2, Els2}] ->
 		    case xml:get_attr_s("xmlns", Attrs2) of
 			"jabber:iq:auth" ->
-			    {auth, get_auth_tags(Els2, "", "", "", "")};
+			    {auth,
+			     xml:get_attr_s("id", Attrs),
+			     get_auth_tags(Els2, "", "", "", "")};
 			_ -> false
 		    end;
 		_ ->
diff --git a/src/jlib.erl b/src/jlib.erl
new file mode 100644
index 000000000..17a194ebe
--- /dev/null
+++ b/src/jlib.erl
@@ -0,0 +1,19 @@
+%%%----------------------------------------------------------------------
+%%% File    : jlib.erl
+%%% Author  : Alexey Shchepin <alexey@sevcom.net>
+%%% Purpose : 
+%%% Created : 23 Nov 2002 by Alexey Shchepin <alexey@sevcom.net>
+%%% Id      : $Id$
+%%%----------------------------------------------------------------------
+
+-module(jlib).
+-author('alexey@sevcom.net').
+-vsn('$Revision$ ').
+
+%%-export([Function/Arity, ...]).
+
+
+send_iq(From, To, ID, SubTags) ->
+    ok.
+
+
diff --git a/xml_stream.beam b/xml_stream.beam
new file mode 100644
index 000000000..2043d686c
Binary files /dev/null and b/xml_stream.beam differ