How do I set up Android Studio to work completely offline?

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Android Studio 0.4.0 now includes support for offline:

http://tools.android.com/recent/androidstudio040released

“You can now open the Compiler > Gradle options and enable Offline mode, which will tell Gradle to ignore update-to-date checks”

Updated Nov 2018:
Now you can Open preferences, then search for “offline” and in the results select gradle and click “Offline work”

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