It shows hardware buttons, but these buttons are not viewable.
If HOME and BACK are displayed on the navigation bar, they are not โhardware buttonsโ. This is a navigation bar. For the real "hardware" buttons "HOME" and "BACK" you will not see anything, and on your keyboard the developer displays on Home and Esc .
Go to the actual configuration file for your AVD. On OS X and Linux, this is usually ~/.android/avd/.../config.ini , where ... based on the name of your AVD. See what your hw.mainKeys value hw.mainKeys . For the "hardware" buttons HOME and BACK hw.mainKeys should be yes ; for the navigation bar with the HOME and BACK hw.mainKeys should be no .
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