  We consider two-dimensional inviscid irrotational flow in a two layer fluid
under the effects of gravity and surface tension. The upper fluid is bounded
above by a rigid lid, and the lower fluid is bounded below by a rigid bottom.
We use a spatial dynamics approach and formulate the steady Euler equations as
a Hamiltonian system, where we consider the unbounded horizontal coordinate $x$
as a time-like coordinate. The linearization of the Hamiltonian system is
studied, and bifurcation curves in the $(\beta,\alpha)$-plane are obtained,
where $\alpha$ and $\beta$ are two parameters. The curves depend on two
additional parameters $\rho$ and $h$, where $\rho$ is the ratio of the
densities and $h$ is the ratio of the fluid depths. However, the bifurcation
diagram is found to be qualitatively the same as for surface waves. In
particular we find that a Hamiltonian-Hopf bifurcation and a Hamiltonian real
1:1 resonance occur for certain values of $(\beta,\alpha)$. Of particular
interest are solitary wave solutions of the Euler equations. Such solutions
correspond to homoclinic solutions of the Hamiltonian system. We investigate
the parameter regimes where the Hamiltonian-Hopf bifurcation and the
Hamiltonian real 1:1 resonance occur. In both these cases we perform a center
manifold reduction of the Hamiltonian system and show that homoclinic solutions
of the reduced system exist. In contrast to the case of surface waves we find
parameter values $\rho$ and $h$ for which the leading order nonlinear term in
the reduced system vanishes. We make a detailed analysis of this phenomenon in
the case of the real 1:1 resonance.
