While patrolling near Cardassian space, the starship Enterprise is suddenly attacked by a Cardassian vessel. Captain Picard (Patrick Stewart) is able to convince its commander, Gul Macet (Marc Alaimo), to stand down, and learns that Macet's attack was in retaliation for a Federation ship attacking a Cardassian science station two days prior. Picard confirms this with Starfleet, and is told that the starship Phoenix, commanded by Captain Benjamin Maxwell (Bob Gunton), was responsible for the prior attack and orders the Enterprise to locate the vessel. Picard offers Gul Macet and two of his officers to come aboard as observers to maintain the fragile peace between the Federation and Cardassia. As the Enterprise looks for signs of the Phoenix, Picard discovers that transporter chief Miles O'Brien (Colm Meaney) was a former crewmember under Maxwell on the Rutledge during the Cardassian war, and offers him to join in a briefing for Gul Macet. There, O'Brien reveals he still harbors some resentment for the Cardassians, revealing that Maxwell's family was killed by Cardassians. Gul Macet infers that Maxwell must be out for revenge, but O'Brien denies this.
The Enterprise locates the Phoenix on an intercept course for a Cardassian freighter, but they would not be able to reach there in time. Picard lets Gul Macet relay the position of the Phoenix to a closer Cardassian cruiser, but Maxwell's tactics are able to overwhelm it, and both the cruiser and freighter are lost, killing over 650 Cardassians.
Shortly thereafter, the Enterprise rendezvous with the Phoenix, and Maxwell transports aboard, greeting O'Brien as an old friend. Alone, Maxwell asserts to Picard that the Cardassians are re-arming themselves; the science station was a cover for a military base, and the freighters are carrying weapons. Picard convinces Maxwell that this not proper behavior for a Starfleet captain, and gains his assurance that he will pilot the Phoenix directly back to Federation space. However, en route, the Phoenix breaks course towards another freighter. Maxwell is poised to destroy the freighter, demanding that the Federation officers be allowed aboard to see proof of the Cardassian's deception. The Enterprise crew notes that the freighter is equipped with a field that blocks their scans. Picard prepares to fire on the Phoenix as to maintain the peace with the Cardassians, but O'Brien requests to beam over to the Phoenix, using a transporter trick to sneak past its shield, and talk to Maxwell. Aboard the Phoenix, O'Brien and Maxwell reminisce about their time aboard the Rutledge and share in drinking heavily and singing songs from their common Irish ancestry. Eventually, O'Brien is able to convince Maxwell there is no way that he can win the current scenario, and Maxwell agrees. He transfers his command to his first officer and the Phoenix starts its return to Federation space, while Maxwell returns to the Enterprise with O'Brien, to be held there pending return to Starfleet.
As the Cardassian observers are returned to their ship, Picard cautions them that while Maxwell's actions may have been improper, his fears about the Cardassian's intentions appear to be true; the so-called "science station" was located in a strategic military position but with little scientific value, and the fields on the freighter were specifically designed to block Federation scanning. He cautions Gul Macet that the Federation will be watching the Cardassians very closely in the future.
This episode was the first to feature Colm Meaney's character Miles O'Brien in a prominent role. It makes reference to O'Brien's history with the Cardassians, and the massacre at Setlik III which would be touched upon again several times during the run of Star Trek: Deep Space Nine, where it would be revealed that O'Brien was known as "the hero of Setlik III" and repaired a transporter for the first time while rescuing several of his shipmates.
Gul Macet was played by Marc Alaimo in his third appearance on The Next Generation. He would go on to portray Gul Dukat, a recurring character on Deep Space Nine. It also marks the only appearance of a Cardassian with facial hair.