Is it feasible to setup a private LAN between 2-3 servers that are located across WAN? In my understanding, the private LAN is normally setup, when the servers are in local site. Also, we can setup a VLAN in this case, but it becomes a Public LAN. Am I right?
You are looking for a VPN (Virtual PRIVATE Network). It is not a public LAN, it remains private to anyone who has credentials. You can even get more detailed by forcing remote VPN users to be part of a domain which would still control access to domain resources.
A VLAN has nothing to do with what you are discussing. A VLAN segments your network locally and is layer 2 only (will not traverse a WAN). A VLAN is generally considered a separate subnet/network segment allowing multiple segments per switch. Without VLAN's, a separate switch would be required for each subnet.
If you create a VPN it would accomplish what you are wanting to do but also requires cryptographic IOS or a PIX to be in the scenario.
Now, (when VLAN cannot be used for it) I am curious to know about setting up a Public LAN with the 2-3 servers that are located across WAN. What are the options available to configure such a setup?
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