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<!-- CURSOR_SUMMARY -->
---

> [!NOTE]
> **Medium Risk**
> Changes local-agent streaming/history rebuilding and compaction
timing/persistence, which can impact message ordering, UI rendering, and
tool-loop continuity if edge cases are missed.
> 
> **Overview**
> **Enables mid-turn context compaction in local-agent mode** by
triggering compaction between AI SDK steps (when token usage crosses the
threshold and the step included tool calls) so the agent can finish the
same user turn.
> 
> Updates `handleLocalAgentStream` to rebuild message history after
compaction while preserving in-flight tool-loop messages, inline the
compaction indicator into the active assistant response, hide
newly-inserted compaction-summary DB rows from streamed message lists,
and persist only the post-compaction `aiMessagesJson` slice. Also
hardens compaction output by XML-escaping the stored summary, adds
`createdAtStrategy` handling for compaction insertion timing, and
includes new unit/E2E coverage (fixture + snapshots) plus expanded git
workflow documentation.
> 
> <sup>Written by [Cursor
Bugbot](https://cursor.com/dashboard?tab=bugbot) for commit
ac3ccb6e1221012141954ba6560ef2426bf07253. This will update automatically
on new commits. Configure
[here](https://cursor.com/dashboard?tab=bugbot).</sup>
<!-- /CURSOR_SUMMARY -->

<!-- This is an auto-generated description by cubic. -->
---
## Summary by cubic
Enables mid-turn context compaction in local-agent tool loops so the
agent can finish the same user turn. Improves history rebuilding, inline
compaction messaging, streaming behavior, scheduling, and safe
persistence.

- **New Features**
- Triggers mid-turn compaction when per-step tokens cross the threshold
and tool calls exist; schedules in onStepFinish and applies before the
next step.
- Centralizes history via buildChatMessageHistory, preserving in-flight
assistant/tool messages, hiding mid-turn compaction DB rows from
streaming, and placing the summary after the triggering user.
- Streams a compaction preview over current content and inlines the
final compaction summary into the current assistant turn; selects
createdAtStrategy ("now" mid-turn, "before-latest-user" pre-turn) with a
1-second margin to keep turn order.
- Persists only post-compaction AI messages when compaction happens
mid-turn, slicing correctly with 0-indexed stepNumber.

- **Bug Fixes**
- Escapes compaction summary in both the live preview and the persisted
DB message to prevent XSS.
- Re-queries chat only on successful compaction and filters hidden
compaction summaries out of streaming payloads.
- Clears injected messages after mid-turn compaction to avoid stale
insertion indices; prevents repeat attempts and skips further compaction
checks in the same turn after success.
- Always runs checkAndMarkForCompaction in onStepFinish to mark
next-turn compaction when appropriate.

<sup>Written for commit ac3ccb6e1221012141954ba6560ef2426bf07253.
Summary will update on new commits.</sup>

<!-- End of auto-generated description by cubic. -->

---------
Co-authored-by: Claude Opus 4.5 <noreply@anthropic.com>
Co-authored-by: claude[bot] <41898282+claude[bot]@users.noreply.github.com>