IFF system : how does it work?

Every new fighter must have an IFF (identification friendly or foe) to avoid that they should intercept friendly airplanes? But how does it really work? In computergames it’s very easy, the red triangle is the “boogy”, green triangles are NATO-airplanes, orange ones are not known and the blue one is your wingman. In real combat it’s not so easy to identify another aircraft. (remember when two USAF F15’s shot down two US Army UH-60’s during desert storm). Can’t the awacs make up a list of all flying objects in the air? And what about friendly ground targets : is it so difficult to make difference between friendly and enemy tanks from long distance? In desert storm (according to tom clancy’s book every man a tiger in co with gen. chuck horner) 50% of all friendlu loses where caused by own fire … µ
It’s more difficult not to attack own targets than to attack enemy targets.