Based on the following paragraph from cisco (I copied and pasted, but didn't copy the source link :( )
Queueing generally happens on outbound interfaces only. A router queues packets that are going out an interface. You can police inbound traffic, but usually you cannot queue inbound (an exception is receive-side buffering on a Cisco 7500 Series router using distributed Cisco Express Forwarding (dCEF) to forward packets from the ingress to the egress interface; for more information, refer to Understanding VIP CPU Running at 99% and Rx-Side Buffering. On high-end distributed platforms such as the Cisco 7500 and 12000 Series, the inbound interface may use its own packet buffers to store excess traffic switched to a congested outbound interface following the inbound interface's switching decision. In rare conditions, typically when the inbound interface is feeding a slower outbound interface, the inbound interface can experience incrementing ignored errors when it runs out of packet memory. Excessive congestion can lead to output queue drops. Input queue drops have a different root cause most of the time . For more info on troubleshooting drops, refer to the following document
It seems that the actual queueing may not take place? other than the classification?
Surely you can get QoS working there as regards to marking and policing on the input, and all kind of stuff on the output.
If you really ment original 7206 (non-VXR) it might not be up for the job CPU-wise, but VXR even with NPE-400 can happily handle even higher loads with QoS enabled on the interfaces. Of course things also depend on how complex your traffic classification is.
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