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This paper presents an interpretation of the physical mechanisms involved in the generation of laser beam-induced current (LBIC) in semiconductor p-n junction diodes. LBIC is a nondestructive semiconductor characterization technique that has been used in a qualitative manner for a number of years and is especially useful for examining individual photodiodes within large two-dimensional arrays of devices. The main thrust of this work is the analysis of LBIC in terms of nonzero steady-state circulatory current flow within the device and, hence, the interpretation of LBIC line profiles to diagnose the patterns of current flow within the structure. This provides an important basis for future studies seeking to relate LBIC to indicators of p-n junction performance and integrity such as dark current components and reverse bias saturation current. In particular, this paper examines the ideal cases of a single isolated p-n junction diode structure, and also considers an array of such devices in close proximity to each other. Modifications to the idealized theory that are required to account for localized junction leakage and surface recombination are presented, and the effect of Schottky contacts is discussed. Numerical simulations based on the HgCdTe family of semiconductors are presented to support the theory.