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If you've got time and money, I've found it's best to set up honeypot in it's own DMZ. A DMZ is a way to protect a network. You set up one firewall, then your web servers, then another firewall to protect your application servers. You do this because web servers need more exposure to internet than your application servers. Also, application servers are much more expensive and critical and thus deserve more protection.
So what you do with honeypots is set up a third DMZ and add one or more honeypot systems to them. Thus, you might put a firewall, a honeypot, another firewall, your web servers, another firewall and then your application servers. You can also just leave honeypots right on internet if you want, although that tends to make them too easy of a target.
And then you just let them sit there and attract hackers. Oh yes, you have to be sure to keep extensive records of everything that happens on these systems, just in case you need it later.
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