Nutshell: A good tale of Starfleet paranoia, although it can't really live up to "Homefront."
Four days after the massive power outage which had Earth holding its breath for a Dominion invasion, all is still clear. Power has been restored, and there have been no indications of an attack. Things are far from normal, however. There are armed Starfleet officers on, seemingly, every street corner. Admiral Leyton has declared martial law and holds Earth in his hands.
Something isn't right. Sisko finds an inconsistency in an obscure record, and through a plot twist involving Starfleet Academy (and Nog, if you can believe it) Sisko learns what's really going on: Admiral Leyton—not Dominion infiltrators—caused Earth's power outage so he could convince the President to turn over control of Earth to him. This way, Leyton can put troops on the streets and execute the security measures he deems necessary.
"Paradise Lost" is exactly what I expected it to be. It's a good episode, but hardly an event of astounding magnitude that would, in retrospect, make "Homefront's" setup seem as truly frightening as it appears to want to be. I mean, let's face it. If the Dominion actually attacked during the blackout, the repercussions would be so unfathomable that I can't even begin to imagine such an episode. The writers will not begin to take such risks with the series, because if there's one constant in the Star Trek universe, it's that there will always be peace on Earth, and the Federation will remain intact.
It's kind of like "The Best of Both Worlds." It had one hell of a setup, yet the outcome was inevitable. It posed the question: Are the Borg really going to assimilate Earth? Well, of course not. Things that bad by definition can't happen on Star Trek, even if the story would be more realistic, disturbing, and/or dramatic if they did happen.
Consider last season's two-part "Past Tense," where Sisko and the others got stuck in Earth's past. Part one ends with Sisko deciding to take the place of the martyr Gabriel Bell. In dramatic terms, the best way to have ended part two would have been to have Sisko give his life in Bell's place to preserve the time line. Instead, there's a very convenient but necessary contrivance that allows Sisko to live, but have the same effect on history. Why? Simply because writers can't make big changes in history or kill off the leading character of the series. It's as simple as that.
My point? In essence, the writers' hands are tied. They need a resolution, but it probably can't be something that's going to have a profound effect on the Star Trek universe.
"Paradise Lost" also has this quality. Obviously, the Dominion is not going to destroy Earth. And unless the creators had decided to do some kind of war episode in which the Dominion are defeated (which, on the other hand they could have done, and probably should do eventually down the line) there is also no real way to actually have a Dominion attack like part one wants to suggest.
So, what instead? The episode is about Leyton's power play to declare martial law—a story that does indeed work, despite some foregone conclusions. On a character level, this is about Sisko's choice of having to confront a friend and former-mentor who is undermining the best interests of Earth and the Federation. (And I'll have to admit, though it's satisfactory, this can't compare to part one's story of living a life amid confusion and paranoia.)
Still, Sisko carrying a story about duty and loyalty is a good idea. When Sisko tells Leyton that he isn't going to support the initiative to take Earth under military rule, Leyton orders Sisko back to DS9, which, naturally, Sisko refuses. He instead begins gathering evidence against Leyton to present to the President. Subsequently, Leyton fakes Sisko's blood test and tells the President that Sisko is a shapeshifter. They throw Sisko into a cell.
Noteworthy is the scene where Leyton visits Sisko in his cell. He reveals a subtle guilt for doing what he did to his friend. He seems to genuinely care about Sisko's welfare ("If you need anything—food, something to read—just tell the guard"). It's nice to see that the writers don't throw characterization out the window just to make Leyton less sympathetic. At the same time, I wonder if Leyton would really go so far as to open fire on another Federation ship for what he considers the best interests of the Federation.
The show basically rides on this conclusion, in which Odo breaks Sisko out of jail and the honorable Starfleet captain goes to Leyton's office to try to talk some sense into him. Sisko has a speech or two—delivered with perhaps too much passion, as Avery Brooks tends to overact here, whereas Robert Foxworth's lower-key style might have been better suited to both characters rather than just Leyton's.
With the Defiant on its way to Earth to prove that the mysterious wormhole activity was indeed not a cloaked Dominion fleet, but a ruse orchestrated by Leyton's informant on DS9, Leyton sends his right hand officer, Captain Benteen of the USS Lakota (Susan Gibney, who portrayed Dr. Leah Brahms on TNG) to intercept the Defiant which is "not to reach Earth under any circumstances!" under the pretense that everyone on board has been replaced by shapeshifters. With the situation out of his hands, all Sisko can do is wait, while the Defiant and the Lakota face off.
This brings up a rather unique situation—two Starfleet ships shooting at each other. After a brief phaser battle, Worf and Benteen realize they have to ignore their superiors and make some field choices. Benteen abandons Leyton's increasingly outlandish procedures. With no one to back him up, Leyton realizes that he's lost his initiative. His approach is wrong, he's ruined, he decides to resign, etc., etc. This is all basically by-the-numbers, but the presentation is what makes the show work. Reza Badiyi's direction, while not particularly gripping, keeps the momentum up to a satisfactory pace.
So what does this two part episode mean? It's best summed up in one fascinating, stand-out scene between Sisko and a Changeling spy who assumes O'Brien's form. The Changeling informs Sisko that there are only four shapeshifters on the entire planet. "And look at the havoc, we've wrought," he says. He's right. Paranoia running amok is exactly what allows Leyton's power play to take place in the first place. The Dominion's biggest advantage over the Federation is how they can plant fear and suspicion.