The local policy is set in our LAN so that passwords have to be 8 characters and contain a capital letter, a small letter and a special character. Is Unix able to restrict users passwords to certain lengths and characters.

The traditional unix password system supports a maximum password of 8 characters. There are many version of the passwd program. Many of them require that you use a high percentage of that 8 characters and have other rules. A few passwd programs let the system administrator set some of the limits.

In addition to replacing the passwd program, it is possible to replace the encryption algorithm as well. If you convert HP-UX to "trusted system" mode, a much stronger password system is used. OpenBSD uses a very strong password system. This the trouble with questions like this....unix is a large collection of operating systems and it's easy to make local changes to anything except the non-driver portions of the kernel.

The traditional unix password system is weak by today's standard because of the 8 character limit. It was awesome in the early 70's when it was designed, but it is no longer state of the art.

Note that many implementations of the passwd program allow you to enter more than 8 characters but they ignore the extra characters.