In the below image you will see i have spawned in two squads, Rebels containing 4 soldiers and USA containing 4 soldiers whilst in F3 otherwise know as mission mode. By default, both squads are set to Player 0 as seen in the right menu under the sub heading players.


In the below pic i have changed both squads to be Player 1 and Player 2 using the Players submenu as shown.



Whilst still in F3 mode i press F9 to bring up the mission settings menu.



Clicking on Diplomacy brings up the Diplomacy options screen as shown below. In this screen you will see that player 1 and player 2 show red, which means they are enemies and when you start the mission in F1 mode, they will attack each other.



Before i press start in F1 mode, i hover over the opposing squad and you will see that they have a red silhouette showing that they are an enemy force as shown below.



The result after i start the mission in F1 mode is rather unpleasant as seen in the below pic.



By clicking on the red box where player 1 and player 2 intersect, i can change it to green (allies) or yellow (neutral). Below shows them set up as allies.



Once again, prior to pressing start in F1 you will see that if i hover my cursor over the other squad, they show a green silhouette showing them as an ally.



Now when i press start, they get along without any blood spilt.


This was just a quick guide to help a player out. If you would like more added let me know.