diff --git a/packages/dashboard/app/components/__tests__/AgentLogViewer.rendering.test.tsx b/packages/dashboard/app/components/__tests__/AgentLogViewer.rendering.test.tsx
index 2999e7ca53..771861f2ee 100644
--- a/packages/dashboard/app/components/__tests__/AgentLogViewer.rendering.test.tsx
+++ b/packages/dashboard/app/components/__tests__/AgentLogViewer.rendering.test.tsx
@@ -334,6 +334,35 @@ describe("AgentLogViewer", () => {
     expect(content.classList.contains("agent-log-tool-detail-content--collapsed")).toBe(true);
   });
 
+  it("keeps identical failed-tool disclosures independent and renders error markup as inert text", () => {
+    Object.defineProperty(window, "innerWidth", { configurable: true, writable: true, value: 390 });
+    const detail = "Error: edit failed\n<script>alert('inert')</script>\n  at edit (tools.ts:12:4)";
+    const entries = [
+      makeEntry({ text: "edit", type: "tool_error", detail, timestamp: "2026-01-01T00:00:00Z" }),
+      makeEntry({ text: "edit", type: "tool_error", detail, timestamp: "2026-01-01T00:00:00Z" }),
+      makeEntry({ text: "edit", type: "tool_error", detail, timestamp: "2026-01-01T00:00:00Z" }),
+    ];
+    const { container } = render(<AgentLogViewer entries={entries} loading={false} />);
+
+    const toggles = screen.getAllByTestId("tool-detail-toggle");
+    expect(toggles).toHaveLength(3);
+    expect(toggles[0]).toHaveAccessibleName("Show output (3 lines)");
+    expect(toggles[0]).toBeEnabled();
+    fireEvent.click(toggles[0]);
+    expect(toggles[0]).toHaveAttribute("aria-expanded", "true");
+    expect(toggles[1]).toHaveAttribute("aria-expanded", "false");
+    fireEvent.click(toggles[1]);
+    expect(toggles[1]).toHaveAttribute("aria-expanded", "true");
+    expect(toggles[2]).toHaveAttribute("aria-expanded", "false");
+    const expandedDetails = screen.getAllByTestId("tool-detail-content").filter(
+      (content) => !content.classList.contains("agent-log-tool-detail-content--collapsed"),
+    );
+    expect(expandedDetails).toHaveLength(2);
+    expect(expandedDetails[0]).toHaveTextContent("<script>alert('inert')</script>");
+    expect(expandedDetails[1]).toHaveTextContent("<script>alert('inert')</script>");
+    expect(container.querySelector("script")).toBeNull();
+  });
+
   it("shows complete long tool output after expanding the output disclosure", () => {
     const longDetail = `first line\n${"output ".repeat(45)}AGENT_LOG_RESULT_SUFFIX`;
     render(<AgentLogViewer entries={[makeEntry({ text: "Bash", type: "tool_result", detail: longDetail })]} loading={false} />);
diff --git a/packages/engine/src/__tests__/agent-logger-diagnostics.test.ts b/packages/engine/src/__tests__/agent-logger-diagnostics.test.ts
new file mode 100644
index 0000000000..612c24cac5
--- /dev/null
+++ b/packages/engine/src/__tests__/agent-logger-diagnostics.test.ts
@@ -0,0 +1,38 @@
+import { afterEach, beforeEach, describe, expect, it, vi } from "vitest";
+import { AgentLogger } from "../agent-logger.js";
+
+vi.mock("../logger.js", () => ({
+  createLogger: () => ({ log: vi.fn(), debug: vi.fn(), warn: vi.fn(), error: vi.fn() }),
+}));
+
+describe("AgentLogger failed-tool diagnostics (FN-8697)", () => {
+  beforeEach(() => vi.useFakeTimers());
+  afterEach(() => vi.useRealTimers());
+
+  it("persists redacted error detail even when normal tool output persistence is disabled", async () => {
+    const appendLog = vi.fn().mockResolvedValue(undefined);
+    const logger = new AgentLogger({
+      taskId: "FN-8697",
+      appendLog,
+      persistAgentToolOutput: false,
+    });
+    const secret = "sk-live-ABCDEFG1234567890abcdef";
+    // FNXC:AgentLogDiagnostics 2026-08-01-19:24: Tool diagnostics must honor every shared-redactor match, including low-entropy opaque values, before either log sink persists them.
+    const opaqueToken = "a".repeat(40);
+    const detail = `Error: edit failed\nAuthorization: Bearer ${secret}\ntoken=${opaqueToken}\n    at edit (tools.ts:12:4)`;
+
+    logger.onToolEnd("edit", true, detail);
+    await logger.flush();
+
+    expect(appendLog).toHaveBeenCalledWith(expect.objectContaining({
+      type: "tool_error",
+      text: "edit",
+      detail: expect.stringContaining("Error: edit failed"),
+    }));
+    const persisted = appendLog.mock.calls[0][0].detail as string;
+    expect(persisted).toContain("at edit (tools.ts:12:4)");
+    expect(persisted).toContain("[REDACTED]");
+    expect(persisted).not.toContain(secret);
+    expect(persisted).not.toContain(opaqueToken);
+  });
+});
diff --git a/packages/engine/src/__tests__/agent-logger.test.ts b/packages/engine/src/__tests__/agent-logger.test.ts
index 56aff229f1..f0b0ec1e4d 100644
--- a/packages/engine/src/__tests__/agent-logger.test.ts
+++ b/packages/engine/src/__tests__/agent-logger.test.ts
@@ -551,7 +551,7 @@ describe("AgentLogger", () => {
       persistAgentToolOutput: true,
     });
 
-    const longError = "error:" + "y".repeat(1200);
+    const longError = "error:" + "y-".repeat(600);
     logger.onToolEnd("Read", true, longError);
     await vi.advanceTimersByTimeAsync(0);
 
@@ -568,7 +568,7 @@ describe("AgentLogger", () => {
       persistAgentToolOutput: true,
     });
 
-    const longResult = "x".repeat(600);
+    const longResult = "x-".repeat(300);
     logger.onToolEnd("Bash", false, longResult);
     await vi.advanceTimersByTimeAsync(0);
 
diff --git a/packages/engine/src/__tests__/executor-tool-failure-retry.test.ts b/packages/engine/src/__tests__/executor-tool-failure-retry.test.ts
index 528509fa98..b9565c77e6 100644
--- a/packages/engine/src/__tests__/executor-tool-failure-retry.test.ts
+++ b/packages/engine/src/__tests__/executor-tool-failure-retry.test.ts
@@ -1,5 +1,5 @@
 import { afterEach, beforeEach, describe, expect, it, vi } from "vitest";
-import type { TaskDetail } from "@fusion/core";
+import { resolveConsecutiveToolFailureRetryBackoffMs, resolveMaxConsecutiveToolFailureRetries, type TaskDetail } from "@fusion/core";
 import "./executor-test-helpers.js";
 import { TaskExecutor } from "../executor.js";
 import { createMockStore, resetExecutorMocks } from "./executor-test-helpers.js";
@@ -105,6 +105,26 @@ describe("executor consecutive tool-failure retry (FN-7996)", () => {
     }));
   });
 
+  it("normalizes the configured backoff and waits before retrying", async () => {
+    const { executor, task } = makeHarness({
+      retries: 2.9,
+      entries: [{ type: "tool_error" }, { type: "tool_error" }, { type: "tool_error" }],
+      settings: { executorToolFailureRetryBackoffMs: 2500.9 },
+    });
+    const execute = vi.spyOn(executor as any, "execute").mockResolvedValue(undefined);
+
+    expect(resolveMaxConsecutiveToolFailureRetries({ executorToolFailureRetryCount: 2.9 })).toBe(2);
+    expect(resolveMaxConsecutiveToolFailureRetries({ executorToolFailureRetryCount: -1 })).toBe(2);
+    expect(resolveConsecutiveToolFailureRetryBackoffMs({ executorToolFailureRetryBackoffMs: 2500.9 })).toBe(2500);
+    expect(resolveConsecutiveToolFailureRetryBackoffMs({ executorToolFailureRetryBackoffMs: -1 })).toBe(2000);
+
+    await (executor as any).handleGraphFailure(task, graphFailure());
+    await vi.advanceTimersByTimeAsync(2499);
+    expect(execute).not.toHaveBeenCalled();
+    await vi.advanceTimersByTimeAsync(1);
+    expect(execute).toHaveBeenCalledWith(task);
+  });
+
   it("parks unchanged after a spent retry budget and emits one exhaustion audit", async () => {
     const { executor, store, task } = makeHarness({
       retries: 2,
diff --git a/packages/engine/src/agent-logger.ts b/packages/engine/src/agent-logger.ts
index 9cc70a0935..366f0c4356 100644
--- a/packages/engine/src/agent-logger.ts
+++ b/packages/engine/src/agent-logger.ts
@@ -1,6 +1,6 @@
 import { createHash } from "node:crypto";
 import type { TaskStore, AgentLogEntry, AgentRole } from "@fusion/core";
-import { categorizeToolName } from "@fusion/core";
+import { categorizeToolName, redactSecrets } from "@fusion/core";
 import { createLogger } from "./logger.js";
 
 /**
@@ -483,12 +483,19 @@ export class AgentLogger {
     const isToolEntry = type === "tool" || type === "tool_result" || type === "tool_error";
     // FNXC:AgentLogging 2026-07-15-16:00: Failed tool detail is diagnostic signal, unlike verbose arguments/success output, and must survive default-off tool-output persistence for FN-7995 Activity diagnosis.
     const includeDetail = !isToolEntry || type === "tool_error" || this.persistAgentToolOutput;
+    /*
+    FNXC:AgentLogDiagnostics 2026-08-01-17:51:
+    FN-8697 requires useful failed-tool detail to cross the established secret-redaction boundary
+    before an AgentLogger batch reaches JSONL, the API, or the Activity disclosure. Redact at this
+    common entry point so store and callback sinks cannot persist or display credentials.
+    */
+    const persistedDetail = detail !== undefined && includeDetail ? redactSecrets(detail) : undefined;
     const entry: AgentLogEntry = {
       timestamp: new Date().toISOString(),
       taskId: this.taskId,
       text,
       type,
-      ...(detail !== undefined && includeDetail && { detail }),
+      ...(persistedDetail !== undefined && { detail: persistedDetail }),
       ...(this.agent !== undefined && { agent: this.agent }),
       ...(timing?.durationMs !== undefined && { durationMs: timing.durationMs }),
       ...(timing?.timeToFirstTokenMs !== undefined && { timeToFirstTokenMs: timing.timeToFirstTokenMs }),