It's not "illegal" if your router is configured to grant them access to your network.
The law only prohibits "unauthorized access of a computer network". When someone uses their computer to request access, and your router grants access with no passWord, then their access of your network is authorized. I always configure my routers to share my connection with neighbors and visitors (in a secure way, of course).
If you enable WEP encryption, and they crack the encryption in order to access it, then it's illegal, because their access was unauthorized. But this only makes it illegal for them, it doesn't actually stop them. WEP is very easy to crack, and basically useless. Disabling SSID broadcast is also useless.
While WEP will certainly put you a step ahead of no security at all, if the neighbor is determined to use your wireless network they can break WEP encryption pretty simply using aircrack, a freely available tool. To really stop them, you need to use the stronger encryption offered by WPA or WPA2, which is available on all newer wireless routers. Then it is both illegal and difficult (if not impossible) for them to crack.
When enabling encryption, use a passphrase. It is MUCH easier to set up on other computers than it is to type 42 randomly chosen letters and numbers!
With the SSID changed from the default, broadcast of that name disabled and with the encryption set at 128, it will practically be impossible for your neighbor to get online by using yourrouter.
The neighbor may SEE your wireless network but will not be able to access it without the correct passphrase.
If you enable WPA you will have the option of using TKIP or AES encryption. Choose the stronger AES encryption if your router and client systems will support it. Although most neighbors will not be sophisticated to take advantage of it, there is an identified vulnerability in the TKIP algorithm for WPA for which exploits are available. You are better off using the AES encryption.,
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