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A Java interpreter is software that implements the Java virtual machine and runs Java applications. It can be a standalone application like the SDK's java program, or part of a larger application like the Netscape Navigator web browser. It's likely that the interpreter itself is written in a native, compiled language for your particular platform. Other tools, like Java compilers and development environments, can be written in Java (and should be, we'd argue, in order to maximize the portability of the Java development environment). Sun's Forte for Java is one example of a pure-Java IDE.
The Java interpreter performs all of the activities of the Java runtime system. It loads Java class files and interprets the compiled byte-code. It verifies compiled classes that are loaded from untrusted sources. In an implementation that supports dynamic, or just-in-time, compilation, the interpreter also serves as a specialized compiler that turns Java byte-code into native machine instructions.