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Second half, it is revealed that they hadn't even left earth and that their "space helmets" use AI to project realistic alien creature skins onto anyone the government deems a threat, including those who have taken their helmets off. Thus, warrenting immeadiate death by "space" military.

Sounds like a combo of Ender's Game and Haze.

I have read neither sadly.

Most of what you describe here is Ender's Game. Space battle academy for children through simulations and the last simulation was actually real live xenocide.