I'm currently working on a space simulator and i've reached the point where implementation of AI is imminent.I'm wondering what is the best way to do it.I want the system to have the following features. The enemy ships: - engage in dogfights with player / friendlys The allied ships: - defend player - attack enemy If you guys can point me in the right direction i would be very greatful.Thanks

I would begin by a state machine, to express the current goal of each ship,
and steerings behaviors for the navigation.

aye, finite state machines sound best for logic control, and a simple steering mechanism for moving the ships about. as there is very little (if any) environment to collide with, all you will need to check is the distance between ships to make sure they don't collide.

And how will i go about implementing collision avoidance with other ships?

Thats a rather simple steering behavior.

For low-level attitude thruster, engine throttle, and general inertia management I use PD-Controllers (on both the player and enemy ships).
For high level enemy guidance, I use some hand coded steering behaviours. (aim velocity at player, follow the leader with other ships in group)