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In several important applications of external cavity operated semiconductor lasers, including studies for FM optical communication and frequency stabilized lasers for coherent communication systems, the transient response of the laser is of crucial importance. In this letter, we present a first study of the transient optical response following a step current excitation applied to an AlGaAs laser operating in a dispersive external cavity. The study shows for the first time that, for optical feedback near the gain peak of the laser, a steady state is reached after only three roundtrips in the external cavity. However, for optical feedback far (∼100 Å) from the gain peak, 20 or more roundtrips are required before a steady state can be reached. It is also shown that under certain operation conditions the optical feedback can induce damped relaxation oscillations at each subsequent roundtrip in the external cavity.