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This paper presents a unified methodology for detecting, isolating and accommodating faults in a class of nonlinear dynamic systems. A fault diagnosis component is used for fault detection and isolation. On the basis of the fault information obtained by the fault-diagnosis procedure, a fault-tolerant control component is designed to compensate for the effects of faults. In the presence of a fault, a nominal controller guarantees the boundedness of all the system signals until the fault is detected. Then the controller is reconfigured after fault detection and also after fault isolation, to improve the control performance by using the fault information generated by the diagnosis module. Under certain assumptions, the stability of the closed-loop system is rigorously investigated. It is shown that the system signals remain bounded and the output tracking error converges to a neighborhood of zero.