We analyze optical and ultraviolet observations of the symbiotic binary AG
Pegasi acquired during 1992-1997. The bolometric luminosity of the hot comp
onent declined by a factor of 2-3 from 1980-1985 to 1997. Since 1992, the e
ffective temperature of the hot component may have declined by 10%-20%, but
this decline is comparable to the measurement errors. Optical observations
of H beta and He I emission show a clear illumination effect, where high-e
nergy photons from the hot component ionize the outer atmosphere of the red
giant. Simple illumination models generally account for the magnitude of t
he optical and ultraviolet emission-line fluxes. High-ionization emission l
ines-[Ne V], [Mg V], and [Fe VII]-suggest mechanical heating in the outer p
ortions of the photoionized red giant wind. This emission probably originat
es in a low-density region similar to 30-300 AU from the central binary.