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Enigmail offers two options for a key type when generating a new Key Pair. These options are DSA/El Gamal and RSA. The types are quite different and their diferent properties are explained below. The type of key you create is also impacted on what Secure Hash Algorithm (SHA) you want to use for signing email.
DSA/El Gamal Keys:
DSA keys are used for signing email (DSA: Digital Signnature Algorithm) and use a 160bit Secure Hash Algorithm. If you select a DSA key pair, you will get a DSA key that is 1024bits for signing email and an El Gamal key that is whatever key size you specified for encryptiong your email. The El Gamal encryption key is a subkey to the DSA key. If you are interested in using this key type, I recommend that you read the Wikipedia pages on DSA and El Gamal.
RSA Keys can be used to sign and encrypt email. This has its advantages in that public key sizes are kept small, and RSA is widely accepted to be faster at encryption and decryption. Crucially, RSA keys support larger SHA sizes including the most modern SHA256 and SHA512. RSA keys can be configured to sign only or encrypt only when used as a subkey, but in order to set this up, you would need to use the GnuPG command line. If you are interested, the Wikipedia page on RSA is an informative read, but I would urge you to read the section on SHA Signing Algorithms before you decide which key type to choose.
SHA Signing Algorithms:
SHA (Secure Hash Algorithms) are used when signing an email with OpenPGP. Enigmail supports the use of SHA1 to SHA512 and RIPEMD160. SHA1 and RIPEMD160 are both 160bit algorithms, and either one of these must be used if you have a DSA/El Gamal key unless you enable DSA2 (see below). DSA keys are only used for signing your mail, where El Gamal is used to encrypt it. However, a DSA key can only be 1024bits - the key size you specify when generating a DSA/El Gamal key pair only applies to the encryption key itself. Because of this limitation, I recommend that you use an RSA key with a more secure (at least SHA256) algorithm for mail signing.
SHA, the original Secure Hash Algorithm was found to have a weakness where it did not perform well when attacked by computer cryptanalysis. The original SHA (known as SHA0 to differentiate) was replaced by the American National Security Agency in 1995 with SHA1. SHA1 has been subjected to cryptanalysis more recently, and was found to have a much less severe weakness. The full details can be read here, however it is generally accepted in the cryptography community that SHA1 is no longer fully secure and it is recommended that you do not use it where possible. These weaknesses do not necessarily mean that SHA0 and SHA1 have been broken, but they prove that they are not as strong as the amount of bits used in the key would suggest. If you have to use a 160bit Signing Algorithm because of your key type, I would recommend that you use RIPEMD160 - however, a better option would be to update your GnuPG installation and enable DSA2.
However, if you use an RSA key for signing your email, I would suggest that you use SHA256. Although SHA512 is technically stronger, it has the same problem as PGP/MIME in that it is not supported by all email clients. SHA256 is a secure signing algorithm and does not have any of the published weaknesses that SHA0 and SHA1 suffered from. However, where it's possible for you to use SHA512 (eg. you know all your recepients use Thunderbird with Enigmail and OpenPGP) then this is the most secure option.
The latest versions of Enigmail select the SHA algorithm for you automatically - if you have an RSA key, SHA256 is selected by default. To change this, you need to alter the GnuPG settings and Enigmail's settings. For instructions on this, see the FAQ page.
A comparitively recent development in the newest versions of GnuPG is the ability to use DSA2. DSA2 allows you to use more secure SHA types with a DSA key. Previously, DSA keys only supported 160bit hash algorithms. DSA2 now enables you to use SHA224 (a newly developed secure hash algorithm) and SHA256. You do not have to "generate" a DSA2 key - DSA2 is a truncated hash function which allows an existing DSA key to use larger Hash Algorithms.
The DSA2 option may not be available to you by default when using Enigmail (although it is actually a GnuPG option, not an Enigmail option). To enable DSA2 which will allow you to use SHA256 with a DSA key for example, you will need to perform either of the following steps (not both!):
1) In Thunderbird, hit OpenPGP > PREFERENCES and type
"--enable-dsa2" in the box marked Additional parameters for GnuPG.
2) Open your GnuPG home directory (usually C:\Documents and Settings\<user>\Application Data\GnuPG) and open the file gpg.conf in Notepad. Underneath Comment"" add a new line and type "--enable-dsa2" then save the file.
Option 1 - Enable DSA2 in Enigmail
If you use option 2 above, the settings will apply to GnuPG globally, so if you use it with other programs such as WinPT etc, the changes will apply there too. If you use the option within Enigmail, it will only apply to Enigmail. Option 1 is probably the best option if you only use GnuPG for email encryption in Thunderbird.
SHA224 is a relatively new signing algorithm, and support for it in GnuPG came about the same time as DSA2 support. Many people believe that you have to use SHA224 with DSA2, but this is not true. DSA2 supports the more mature (ie. "tried and tested") SHA256 which is arguably more secure because of its larger bit-size.