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For CXF 2.4 onwards, the callback handler supplies the password for all cases, and the validation is done internally (but can be configured). See <a href="http://coheigea.blogspot.com/2011/02/usernametoken-processing-changes-in.html">here</a> here for more information.
On the Client side you'll want to configure the WSS4J outgoing properties:

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