VS Code extension: compact display mode that collapses tool calls

Summary

Add a setting and/or panel toggle in the VS Code Claude Code extension to render tool calls (Read/Bash/Edit/Grep/etc.) in a collapsed/compact form, with full IN/OUT details available on demand. Today they always render fully expanded inline in the chat panel and there is no way to suppress them.

Current behaviour

Every tool call renders fully expanded in the panel, e.g.:

Read C:\Users\me\.claude\projects\foo\memory\resume-point-2026-05-04.md
Bash List labelkrafter memory directory contents
IN
ls "C:/Users/me/.claude/projects/foo/memory/"

OUT
MEMORY.md
audit-bad-coding-practices.md
competitor-gap-analysis-designer.md
... (40 more lines)
Read C:\Users\me\.claude\projects\foo\memory\resume-point-2026-05-04.md

Across a multi-tool turn the panel becomes mostly tool blocks, and the assistant's actual text replies get buried between walls of file listings, grep output, and command transcripts. Scrolling back to re-read an answer means scrolling past everything Claude looked at to produce it.

Desired behaviour

A display mode (settings key, panel-header toggle, or both) that renders each tool call as a single collapsed line:

▸ Read  resume-point-2026-05-04.md
▸ Bash  List labelkrafter memory directory
▸ Grep  pattern in *.php (47 matches)

Click or keyboard to expand any individual block on demand. Assistant text replies render unchanged. This matches the default that Cursor and Zed use for their tool-call rendering.

Why a new issue

I searched for prior art and found close-but-distinct existing issues:

• #37199 (closed, NOT_PLANNED) — broader scope (CLI + extension), focused on per-tool / per-pattern visibility config (voice, auto-save) rather than a global display mode
• #49646 — closed as dup of #37199
• #54322 (open, area:ide, platform:vscode) — sibling request asking for the opposite direction (a verbose toggle to expose thinking + tool I/O). Same panel, same mechanism, opposite default
• #55696 (open, area:tui, area:mcp) — CLI MCP-result collapse; doesn't cover the VS Code extension panel
• #50894 (open, area:tui) — focus-mode bug, CLI only

None of these covers "VS Code extension panel: collapse tool calls by default" as a discrete ask. If maintainers consider this a duplicate of #54322 (treating both as facets of one display-mode setting), happy to consolidate there.

Proposed shape

Either is fine; both is best:

• claudeCode.toolCallDisplay: "expanded" | "collapsed" (default "expanded" for back-compat) — lets users opt into the cleaner default permanently
• A panel-header toggle button (with optional keybinding) — lets users dip into details mid-conversation

Use case

Long working sessions where the user reads back through the conversation to pick up state. Currently the panel reads more like a debug log than a chat. The CLI in the integrated terminal is noticeably easier to scan because tool I/O is more aggressively summarised — but switching to the CLI loses the extension's nicer features (file diffs, sidebar layout, etc.).

Environment

• Claude Code VS Code extension (latest)
• VS Code 1.118.1 on Windows 10