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It's not obvious even rooting through the manual so I'll leave this here for anyone else. To play Battle Isle 1 against the computer you need to enter the appropriate password on the main menu, a list of passwords is here:-

The game starts with a 2 player only map and you will not be able to select computer opponents unless you change this.
Thanks , your post just saved my day :) Downloaded it and was already worried that it´s not working properly.
The passwort for teh first single player level is CONRA, you get the next at the end of each successful mission. (or from teh internet if you forget to write it down ;-) )
if you want to Play 2 Player maps with single Player mode, you might overwrite the original single Player maps with the other files...

But do not expect heavy fights - the AI is too week für balanced maps!