This is definitely one of the best episodes of the more-than-solid 3rd season. It's effectively a sequel to the excellent "The Enemy" -- but in nearly every respect, improves upon its predecessor.
It's a classic premise -- the Enterprise encounters an enigmatic defector who may or may not be a double agent. As the story evolves, we find out more and more about this defector -- without actually figuring out his agenda. The final resolution is brilliant and unexpected.
The writing in this episode (Ron Moore's sophomore effort, I believe) is exceptional, with great dialogue and very little fat to trim. James Sloyan gives an impassioned, powerful performance as the defector, and Patrick Stewart does one heck of a job. A second appearance by one of TNG's best villains - Tomalak - is extremely welcome.
I stated in an earlier review that the Romulans were arguably TNG's best villain - and this may be the best Romulan episode that TNG did.