[BUG] Option+Enter no longer inserts newline in iTerm2 after v2.1.1 upgrade

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

After upgrading from v2.0.76 to v2.1.1, Option+Enter no longer inserts a newline. Previously this was the default behavior on macOS. Now only Shift+Enter works.

This seems to work properly in the Mac Terminal app.

Environment:

• Claude Code version: 2.1.1
• Terminal: iTerm2 (macOS)
• iTerm2 Left Option key setting: "Esc+"

Workaround: Shift+Enter works correctly. As does Terminal.

What Should Happen?

Expected: Newline inserted, cursor moves to next line
Actual: Nothing happens (or prompt submits)

Error Messages/Logs

Steps to Reproduce

1. Upgrade to Claude Code v2.1.1
2. Open Claude Code in iTerm2
3. Type some text
4. Press Option+Enter
5. New lines are not created

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

2.0.76

Claude Code Version

2.1.1

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

iTerm2

Additional Information

Likely cause:
The v2.1.0 changelog includes terminal keyboard mode changes for iTerm2:

• "Changed Shift+Enter to work out of the box in iTerm2, WezTerm, Ghostty, and Kitty without modifying terminal configs"
• "Fixed terminal keyboard mode not being reset on exit in Ghostty, iTerm2, Kitty, and WezTerm"
• "Fixed Alt+B and Alt+F (word navigation) not working in iTerm2, Ghostty, Kitty, and WezTerm"

These changes to terminal keyboard mode handling appear to have broken Option+Enter (which relies on the Option key sending an escape sequence when set to "Esc+").

Notes:

• Terminal configuration unchanged; only Claude Code was upgraded
• /terminal-setup confirms Shift+Enter is natively supported, offers no Option+Enter fix