We employ the finite state machine (FSM) model for networks to investigate fault identification using passive testing. First we introduce the concept of passive testing. Then, we introduce the FSM model with necessary assumptions and justification. We introduce the fault model and the fault detection algorithm using passive testing. Extending this result, we develop the theorems and algorithms for fault identification. An example is given illustrating our approach. Then, extensions to our approach are introduced to achieve better fault identification. We then illustrate our technique through a simulation of a practical X.25 example. Finally future extensions and potential trends are discussed.