The physical conditions near the optical continuum peak ( “ hot spot ” ) in the inner narrow line region ( NLR ) of the Seyfert 2 galaxy , NGC 1068 , are examined using ultraviolet and optical spectra and photoionization models . The spectra were taken with the Hubble Space Telescope /Space Telescope Imaging Spectrograph ( HST /STIS ) , through the 0 ^ { \prime \prime } . 1X52 ^ { \prime \prime } . 0 slit , covering the full STIS 1200 Å to 10000 Å waveband , and are from a region that includes the hot spot , extending 0 ^ { \prime \prime } . 2 , or \sim 14 pc ( for H _ { 0 } = 75 km sec ^ { -1 } Mpc ^ { -1 } ) , in the cross-dispersion direction . The spectra show emission-lines from a wide range of ionization states for the most abundant elements , similar to archival Faint Object Spectrograph spectra of the same region . Perhaps the most striking feature of these spectra is the presence of strong coronal emission lines , including [ S XII ] \lambda 7611 which has hitherto only been identified in spectra of the solar corona . There is an apparent correlation between ionization energy and velocity of the emission lines with respect to the systemic velocity of the host galaxy , with the coronal lines blueshifted , most other high excitation lines near systemic , and some of the low ionization lines redshifted . From the results of our modeling , we find that the emission-line gas is photoionized and consists of three principal components : 1 ) one in which most of the strong emission-lines , such as [ O III ] \lambda 5007 , [ Ne V ] \lambda 3426 , C IV \lambda 1550 , arise , 2 ) a more tenuous , highly ionized component , which is the source of the coronal-line emission , and 3 ) a component , which is not co-planar with the other two , in which the low ionization and neutral lines , such as [ N II ] \lambda 6548 and [ O I ] \lambda 6300 , are formed . The first two components are directly ionized by the EUV-Xray continuum emitted by the central source , while the low ionization gas is ionized by a combination of highly absorbed continuum radiation and a small fraction of unabsorbed continuum scattered by free electrons associated with the hot spot . The combination of covering factor and Thomson optical depth of the high ionization components is insufficient to scatter the observed fraction of continuum radiation into our line-of-sight . Therefore , the scattering must occur in an additional component of hot plasma , which contributes little or no UV/optical line emission .