The script of Who Watches the Watchers is quite clear the the duckblind on Mintaka III was just a holographic projection of a rock. It's good enough to suspend disbelief on the holodeck, so it's good enough to fool some locals.
PICARD: Mister La Forge, report.
LAFORGE: We've finished replicating the parts they'll need, but what I don't understand is why a three man station would need a reactor capable of producing four point two gigawatts.
RIKER: Enough to power a small phaser bank, a subspace relay station, or
LAFORGE: A hologram generator. Oh, a duck blind. Right. They're anthropologists.
PICARD: Now, Mister La Forge.
LAFORGE [OC]: Aye, sir.
(The holographic camouflage comes down)
NURIA: What is that?
PICARD: A place where we can watch your people.
I don't recall there being holosuits that make people invisible in this episode and the script and Memory Alpha make no mention of them (Riker and Troi go to the surface in plain sight with
the same props as the inhabitants surgical alterations), but more on that later.
As for whether using a holographic projector in this manner violates the Algeron treaty, we have to split the hairs of a hologram and a cloak. I think the main distinction between a cloak and a hologram is that a hologram projects an image (photons and holomatter contained by forcefields) where a cloak acts on existing ambient and active signals, bending them around the cloaked object and restoring their normal trajectory on the far side. As the Mintaka observation station is buried in the cliff, and the rock face is unmoving, it's easy to see how a cloak would be the wrong device for the job; instead of seeing an unadulterated cliff, an observer would see the inside of the artificial cave.
To imagine how a hologram would appear to an active scanner, let's consider an analogy to contemporary technology: radar. Radar is an active projection of radio waves, which are lower energy than infrared and far from the human visible spectrum. A radar dish looks for reflections of its projected waves off of objects in its sight. If we were to project a hologram of radio waves, the radar dish would pick this up immediately. This is not a cloak; it's most similar to radar jamming. If we were to project force fields that hold these radio photons in place, the projected radio waves would presumably reflect off of the 'holomatter' as it would a real device.
The human eye does not project light; we only observe reflected light. This is called passive detection. There has not been to my knowledge a humanoid lifeform introduced in Star Trek that uses active sight detection. (There are of course several earth species that use active sound detection.)
Now, there are two occasions in First Contact where standard Federation holographic projects are disrupted by seemingly simple lasers:
- The EMH activated as a deterrent in sick bay by Dr. Crusher flickers under a Borg eyepiece laser.
- The maître d' in The Big Goodbye holo novel is disrupted by Ensign Lynch, also assimilated and fitted with an eyepiece by the Borg.
The point is that holographic technology in Federation use is fairly clearly visible to technologic sensors and only concerned with blocking visible light perceived by biologic sensors, a.k.a. eyes. As the Federation makes liberal use of holographic technology with no diplomatic penalties, one can only assume that it is substantially different from and inferior to a military grade cloaking device. The Treaty of Algeron being a peace treaty, we can again only assume it was primarily concerned with military devices. Thus the Federation was not violating the treaty in Who Watches the Watchers or with any other use of hologram technology.
There are of course several occasions where the Federation makes military use of holographic projections. I think it's an episode of Voyager where they project several holographic shuttle craft decoys to attract fire from attacking Kazon ships; the Kazon are fooled presumably because of their inferior technology can't distinguish beyond the visible spectrum. I don't recall any instance where holographic projections are used to make a ship disappear. Also, there's nothing really preventing an hologram from holding and firing a weapon, with or without a mobile emitter.
However, the TNG movie Star Trek: Insurrection, used a blindingly similar introducktory hook.
A small village sits under cloudless skies, nestled in the rolling, green hills of an alien planet: home to the Ba'ku. The citizens of this village go about their days, tending to crops and livestock – performing the functions of an agrarian civilization. A beautiful woman, Anij, emerges from a crowd of her fellow Ba'ku and makes her way through the village, stopping to silently greet a man named Sojef. Both are unaware that in the calm and peace of their home, they are being watched.
On computer terminals, the activities of the Ba'ku are being monitored. Within a cloaked "duck blind" positioned high on a hill overlooking the village, Starfleet officers and their alien partners, the Son'a, spy on the Ba'ku. Through special monitors, not only can they see the goings on in the village below, but also a team of researchers, themselves cloaked in isolation suits that glow red on screen.
Source: Memory Alpha.
The Federation clearly has a penchant for observing pre-warp cultures, which makes the whole Prime Directive much easier to accidentally violate; Memory Alpha also cites the obvious assumption that the duckblinds in Who Watches the Watchers and Insurrection use the same holographic technology. Note that the Insurrection Memory Alpha article specifically references and links to cloaking technology hiding the duck blind, which I contend is an error. The reference page for cloaking device says:
A cloaking device is a form of stealth technology that uses selective bending of light (and other forms of energy) to render a starship or other object completely invisible to the electromagnetic spectrum and most sensors.
I suppose the superlative "most" sensors makes the exact definition of a cloaking device a bit fluid. However, with pre-warp (and supposedly pre-sensor) civilizations, there isn't much need to conceal things beyond the near visible spectrum. Just hope they never try to observe a planet full of sentient mantis shrimp, as I'm sure abducting and dissection of the eye qualify as 'interfering' in the eyes of the Prime Directive.
But then again, Memory Alpha also references use of "isolation suits", and falls short of calling it a full-blown cloak:
An isolation suit was a type of stealth clothing used by the Federation Starfleet in the 24th century. The suit was equipped with technology that made the person wearing it practically invisible. It was possible to see through the invisibility when a person wearing the suit was viewed through a specialized screen. The suits were linked to the "duck blind" monitoring station, in that they lost the invisibility effect when the duck blind lost it's holographic shell.
The suit itself is much closer to a cloaking device, and therefore much closer to violating the Treaty.
- It moves with the wearer, which is more difficult to do with a perfectly sync'ed holographic projection.
- It is invisible from all angles, showing an observer the perfect image of the other side of the suit.
- Without actually bending the light, this would require the suit to continuously observe its surroundings.
- Anyone who's looked at perspective based optical illusions knows that it's possible to create a near-perfect illusion for a wide range of angles. However, the illusion always has a weakness. Extending this to a hologram attempting to conceal an object, the invisibility would have to strain and warp for some observers if it were observed from enough angles simultaneously.
Revisiting the radar analogy, contemporary stealth technology works by absorbing or deflecting projected radio waves. If this were the effect of the isolation suit's 'stealth', the wearer would appear as a pitch black, humanoid shaped hole in the air. So it's clear the suit itself does not use passive stealth.
Shots from inside the Insurrection duck blind clearly show how the suits are visible to at least some light, and the 'special screen' is suggestive of an unpowered viewing window, like polarization. The red glow, on the other hand, suggests radiation (rather than reflection) of an invisible portion spectrum of light, such as infrared. Perhaps the suits were transmitting on a frequency, like a radar beacon.
Memory Alpha points out that the script makes it clear the suits use a force field. This is pretty flimsy technobable, in my opinion, but here it is:
From the point of view of the rock face behind the
village. Although we may not realize it yet, we are
watching through a window now... slightly discolored,
pulling back to see a mysterious figure in an isolation
suit standing incongruously beside her, his suit glowing
with a green force field. None of the Ba'ku are aware of
him as he takes readings with a sophisticated sensor
device built into his suit.
In conclusion, the duck blind itself, especially in Who Watches the Watchers is in no danger of violating the treaty. The isolation suits used in Insurrection are much closer to active cloaking technology. It is fairly clear from the aesthetics that these are or have become standard Federation issue suits, whether or not they were original developed or provided by the partners-turned-villains Son'a, who make liberal use of other banned technologies such as subspace weapons. The isolation suits appear to have several shortcomings that separate them from a military grade cloaking device. Whether or not these suits violate the Treaty of Algeron's prohibition against developing cloaking technology will be a matter of debate among Alpha Quandrant diplomatic scholars for some time. One can only hope that the post-Nemesis Romulan government will be forgiving.