Newer firewalls can filter traffic based on many packet attributes like source IP address, source port, destination IP address or transport layer port, destination service like WWW or FTP. They can filter based on protocols, TTL values, netblock of originator, of the source, and many other attributes. Application layer firewalls are responsible for filtering at 3, 4, 5, 7 layer. Because they analyze the application layer headers, most firewall control and filtering is performed actually in the software.
References: https://en.wikipedia.org/wiki/Firewall_(computing)#Network_layer_or_packet_filters http://howdoesinternetwork.com/2012/application-layer-firewalls
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