I have two governments. One is ID 128 with a class set ot 1. Enemy is set to class 2. The second is ID 129 with class set to 2, enemy set to 1. Yet when I put them in the same system, they just fly around like nothing was wrong. The ships do have weapons and either Intercepter or Warship A.I.

Check the MaxOdds field. They might be afraid of attacking each other because they think they don't outgun the other enough. Other than that, I have no idea right now.

That was it. I knew I couldn't have gotten my first attempt at govt resources perfect...

This reminds me of something I've been wondering abot for quite some time...what if you have a govt be the ally and the enemy of another govt?

They don't do anything. Many of mine have been like that for quite some time while I'm sorting stuff out. Govt classes are the last thing that I'll do, mostly because I keep having to add more govts.