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Dialogue is a special kind of discourse that enables people with different perspectives and worldviews to work together to: Dispel mistrust and create a climate of good faith; Break through negative stereotypes; Shift the focus from transactions to relationships, creating community; Make participants more sympathetic to one another even when they disagree
While dialogue isn't necessary in a story, it rounds out the basic narrative techniques that all writers use, and is the only one that allows the reader to experience multiple characters' words without the filter of the narrator. Dialogue is when the narrator directly provides a conversation between characters.