I learned how to do this from another LT here in Iraq, who said he learned how to do it in the Boy Scouts. I'd seen a few of them on friends' key chains but they'd been given to them as gifts by folks they knew in the Army, so they didn't know how to do it. I tried to find how to do it on the Internet, but couldn't. Once my buddy showed me how to do it, though, it was pretty simple. To share it with others who may be looking for how to do it, I'm putting together this article.
To start, you need two pieces of paracord. In this case, I'm making a pretty long braid, starting with two 4 foot long pieces of 550 cord.
Next, you need to gut the rope -- pull out the strings from inside.
Now cross one piece over the other.
Pull one end of the bottom piece over the top piece.
Then pull the other end over the top piece in the opposite direction.
Now pull one of the side pieces over, then under, the crossed lines.
And repeat for the other side piece. That's one iteration - the rest is just repeat.
Pull it tight, and it looks like a little square.
When you're just starting it, if you want a loop at one end, it's best to tie the end around something, like a pencil.
Another view before the next tie.
Flip two ends across over the top (without crossing them).
And now the other ends, over then under, forming the weave.
After a few iterations...
It helps to use a lighter to melt the ends so they don't unravel.
Complete, the two 4 foot ropes created about 6 or 8 inches of braid.
When you're done, you'll want to use the lighter to burn the ends down to nothing. If you do it right, the melted parts will cool and fuse to the end, so it won't come undone. Tada, you now have a handy little rope to attach to a key chain or use to hang your earplug case from your uniform, or use as a base for a pistol lanyard.