1. Open My Computer and then Dialup Networking. Right click on the relevant connection, and select Properties. Click on Server Types.
2. If the Log on to Network Option is checked, turn it off.
3. Under Allowed Network Protocols, make sure that the only protocol selected is TCP/IP. If any others are selected, turn them off.
4. Proceed into TCP/IP Settings. Make sure that Server Assigned IP Address is selected.
5. The last two options, Use Default Gateway on Remote Network and Use IP Header Compression, should be checked.
6. Press OK, and OK again if needed to exit the connection properties

1. Click on Start, then Settings, and select Control Panel. Double click on the Network icon.
2. Highlight TCP/IP or TCP/IP Dialup Network Adapter and select Properties.
3. The first tab is IP Configuration. Make sure Obtain an IP Address Automatically is selected.
4. Select WINS Configuration. Click on the top radio button, Disable WINS resolution.
5. Go to the Gateway tab. Make sure there are no installed gateways. If there are any, remove them.
6. Click on the next tab over, DNS Configuration. Click on the top radio button, Disable DNS.
7. Press OK.
8. If there are other protocols installed in the Network Control Panel, remove them (if they are unnecessary to the system). Read the following to determine this: IPX/SPX and NETBEUI are not needed for an Internet dialup connection. Remove the protocols from the Network Control Panel – unless the machine is currently on a LAN, in which case, leave the protocols installed but remove their bindings to the dialup Adapter by removing IPX/SPX Dial-Up Adapter and NETBEUI dialup Adapter. Or, if the machine uses IPX/SPX over a dialup connection, such as a Whirlpool Network dialup, leave the protocols installed and bound to the dialup Adapter.
9. At this point, press OK and click Yes when it asks to reboot the machine. Attempt to dial up and see if the issue is resolved. If not, proceed.

The dialing modem and the connecting modem don’t negotiate properly due to hardware problems or line problems, or a poor initialization string. If the Dialup Connection Properties and the Network Control Panel are set up properly, the next logical step is to determine if it’s a deeper dialup networking issue or a modem issue. To do this, configure the dialup connection to bring up a terminal window after connecting.

1. Open My Computer, then Dialup Networking. Right click on the relevant connection, and select Properties. Where it lists, the modem, there is a Configure button. Press it. Select the Options tab.
2. The second option down, Bring Up a Terminal Window After Connecting, should be checked.
3. Press OK, then press OK again. Attempt to dial.
4. After the modem handshake, a black terminal window will appear. The prompt will display one of two things: identification of a port and a "login:" prompt, or garbage. Garbage looks like an unending display of ASCII characters, like "y#5g;n5;3%:G#975B:%h3H#GQ75gfGH#Q(*&$($&g32G&%".
5. If the window is clean (there is a login: prompt), press the Continue button to see if it logs in. If the dialup Networking negotiation error still appears, this is most likely an issue with dialup Networking. Attempt to install or reinstall dialup Networking 1.2.