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Data fusion techniques are used in many tracking and surveillance systems as well as in applications where reliability is of a main concern. The new data fusion algorithm presented allows information from different sensors to be combined in continuous time. Continuous-time decentralized Kalman filters (DKF) are used as data fusion devices on local subsystems. Such a structure gives flexibility for the reconfiguration of a control system. New subsystems can easily be added without needing any redesign of the whole system. The system does not require a central processor and therefore, in the case of failure of some local subsystems (each of which includes a local processor, sensors and actuators) the overall system continues to work. The simulation results show that the performance of the overall system degrades gracefully even if the sensors of some subsystems fail or interconnections are broken. Furthermore, local Kalman filters can effectively reduce subsystem and measurement noise.