Share external drive with network PCs?

Hi all-
Figured I'd ask here as there are probably more people with an interest in sharing external drives...
Anyway: I'm on a network, but need to set up a dedicated hard drive to share with 1 other person with a PC. The drive will hold all kinds of working files, and we need to be able to open and edit documents from this drive.
Been reading around, but for some reason this task seems harder than I thought it would be...
What's the best way to do this? If necessary, we can set up  a drive on his computer.
Thanks!!
Andrew

Hi Linc-
thanks for the help.
Unfortunately, I'm not really following - and still have questions -
1) Does the external drive need to be formatted NTSF?
2) Can the drive be connected to either computer?
3) What do you mean by the "credentials of a user on the server" ?  This sounds like I need to give my credentials to the other guy I want to share the folder with... that's not going to happen. Maybe I'm misunderstanding.
Not sure if I'm on the right track here..
cheers
Andrew

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