Use HTTP digest authentication without the ugly popup boxes. Separate session from authentication.
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README.md

UPDATE

Almost worked, but ended up stymied by Firefox 4, of all things.

There's no way in FireFox to "log out" a user in a way that it will not pop up a login dialog on the next attempt.

It seems FF thinks that if it's got digest info for a given site, any failure should pop up a login box. It should always try at least twice, in case the nonce has shifted.

Drat. So close.

The attached code has a lot of testing avenues left in it, maybe it may be of use to someone else some day.

-- signing off.

Introduction

This module implements HTTP digest authentication in such a way that browsers can authenticate with a custom login form, and still get all the advantages of HTTP digest authentication.

The major change to "standard" digest authentication is the tweaking of return codes from the digest module. In this implementation, the module will only return a 401 repsonse if there is a problem with the nonce. All other authentication problems (bad password, etc) will return a 400 so the ajax login form can handle the error.

For the purposes of this module, no nonce (ie no authentication header at all), is considered a "bad nonce".

So, therefore, if we try to POST via AJAX to a URI protected by this module, the first attempt will reply with a 401 (as there is no authentication header in the request, and thus no nonce). The AJAX libraries will silently re-send the request with the credentials provided in the AJAX invocation.

Now, if the module determines the digest is incorrect (bad username or password), then it will return a 400, and this error can be trapped by the login form. No login popup appears.

If a user tries to proceed directly to a page protected by the login form, the module will either pop up a browser-default login box, or it can be configured to redirect the user to the default login page.

So, FINALLY we have free and well-understood authentication scheme.

Lastly, since this is a challenge-based authenitcation scheme, you may think you have to store plaintext passwords to make it work. Not so! You can pre-calculate the A1 hash and store that. The module works just fine with a pre-baked A1.