Abstract
Two-photon bistability in a system of three-level atoms driven by a single-frequency field shows nearly ideal squeezing close to a dynamic instability threshold, occurring in the lower branch of the steady-state bistability curve. The squeezing is maximized and becomes very broad band in the bad cavity limit. Such results which were previously predicted on the basis of an effective two-level model, are demonstrated here and analysed by a full three-level treatment of the atoms. In addition, important restrictions and new features are found.