I have noticed that dialogue is an area of gaming where you get everything from players who refuse to talk in character, to Shakespearean drama mavens who have to be pulled off the stage. For those who do not want to talk, I give them the ability to do that and I don't press them to talk in character.

But, for the GM though this is a useful skill, and if you have players that will also engage in dialogue then you have the ability to harness a really powerful story-building tool, namely great dialogue. A lot of story games use a system of a Petitioner and a Granter as the basic building block for dialogue in interactions, but I find that P&G tends to flip back and forth so much that it's not always useful. The Petitioner offers and gets a counter offer and so forth until the original P&G designations are often confused. It's not useless, just not a silver bullet in my experience. So instead I try to stick to principles that are more broad and instead of a P&G structure I just try to get the players to be more mindful of what they are saying as it relates to the principles.

some common dialogue principles that I believe apply:

• Having a Purpose - Good dialogue serves a purpose. This can be to move the story along, for characterization of the character, to provide humor, etc. The most common use I see is to move the story along by asking questions of NPCs. As long as the dialogue achieves something beyond killing time it is probably purposeful. I find that players who have a contingency ready or are fast at enacting a contingency when plan A in the dialogue goes bad are the best at maintaining purpose.
• Subtext - This is where characters talk about things that hint at what they may be thinking about but do not expressly say what they are thinking or feeling unless they are in a moment where they are very upset or otherwise coming clean. You may have to blow the wad early at times (especially with less important hostile NPCs), but if you can, having a character not be completely open about what they want, or are feeling, can build a tension that pays off in a bigger scene. In practical terms this is the bad guy who talks about something other than what is plainly going on in that moment, building tension as the characters wonder what will happen next.
• Good Dialogue is not Realistic - It just seems like it is. Real conversation is super boring to observe as there is a lot of speakers stating the obvious and queries that are not meant to be answered literally. Dialogue needs to have a purpose and needs to be more dense than real conversation. It has to do more work in less time. Real conversation also often ends up being stating the obvious or remarking on something that is completely obvious. When that happens a lot in dialogue it starts to depict the characters as simpletons as they seem to repeat things more than is necessary.

Achieving the feel of real dialogue without actually being slow and obvious can be difficult because it requires that you use just enough of real speech in your dialogue that it does not sound like your neighbors talking about their lawns, but isn't he obviously contrived surreptitious poetry of Anakin's lines as he tells Padme that he is hoping that the wound on his heart won't turn into a scar from the kiss she should never have given him. It's a balance between not being too pedestrian, and not being too obviously contrived.

• Less is More - Unless you are saying something really entertaining and intriguing, talking a lot is probably the wrong answer. I am always happy to get a player who will talk, but sometimes a player will talk too much. This happens a lot in groups in which only one or two players of the group are talkers so they perceive the scene as needing to be filled with the sounds of characters talking. More often than not this starts to be very mundane verbalizations that do not contribute to any purpose. A more densely useful but small bit of dialogue is worth more than a lot of blathering.
• Conflict - Dialogue is usually fueled by some sort of conflict. This will result in combat if the PC or NPC is over the top and strays into threatening or hateful dialogue. Some players absolutely hate listening to a bad guy talk/threaten so know your peeps on that one. Identifying the tension in the interaction is usually fairly easy because it is tied to what the characters want. The Imperial Officer wants to try and root out criminals without disrupting trade too much, the smuggler wants to get through the checkpoint.

What do you think about these principles? What do you like about dialogue in games and how do you achieve it?