[BUG] "Approve and don't ask again" incorrectly reports user rejection and stops working

Environment

• Claude CLI version: 1.0.108 (Claude Code)
• Operating System: Microsoft Windows 10.0.26100
• Terminal: PowerShell

Bug Description

When Claude AI (main thread or subagent) asks for approval to edit a file and the user clicks "Approve and don't ask again", the system incorrectly reports that "the user rejected the file edit" instead of approving it. After this incorrect rejection message, Claude stops working and performs no further actions.

I believe this could be happening when I already have edit mode on. The agent is incorrectly asking for permission (when it has it), and option 2 is likely actually the reject mode (but this is not proven).

Steps to Reproduce

1. Start a task that requires Claude to edit files
2. When prompted with a file edit approval dialog, click "Approve and don't ask again"
3. Observe that the system reports "user rejected the file edit"
4. Note that Claude then stops working and performs no further actions

Expected Behavior

• Clicking "Approve and don't ask again" should approve the file edit
• The system should report that the edit was approved
• Claude should continue working on the task
• Future similar edits should not require approval (don't ask again behavior)

Actual Behavior

• The system incorrectly reports "user rejected the file edit"
• Claude stops working and performs no actions
• The approval is treated as a rejection

Additional Context

This bug affects both the main Claude thread and subagents when they request file edit approvals. The "don't ask again" functionality appears to be misinterpreting the user's approval as a rejection.

Impact

This bug completely blocks workflow when users want to give blanket approval for file edits, as Claude stops working after the first attempted approval.