Alter System vs Alter Database

ALTER SYSTEM is an Instance Level commands generally it applies for running processes, parameters etc where as ALTER DATABASE is a Database Level commands generally it applies to the physical structure of the database. Consider the RAC environment most of our ALTER SYSTEM command local to the instance (ALTER SYSTEM DUMP is an exceptional) and ALTER DATABASE command for the whole database.

Mostly we can use ALTER SYSTEM command when the database status is OPEN while Alter database we can use in MOUNT state.In the sense of Auditing ALTER DATABSE command cannot be audited where as ALTER SYSTEM can.

Finally Use the ALTER DATABASE statement to modify, maintain, or recover an existing and Use the ALTER SYSTEM statement to dynamically alter your Oracle Database instance. The settings stay in effect as long as the database is mounted.