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We study distributed failure diagnosis under a -bounded communication delay, where each local site transmits its observations to other sites immediately after each observation and the transmitted observation is received within at most more event executions of the plant. A notion of diagnosability is introduced so that any failure can be diagnosed within a bounded delay of its occurrence by one of the local sites using its own observations and the -bounded delayed observations received from other local sites. The local sites communicate among each other using an ldquoimmediate observation passing (iop)rdquo protocol, forwarding any observation immediately up on its occurrence. We construct models for the -bounded communication delay and use them to extend the system and nonfault specification models for capturing the effect of bounded-delay communication. By using the extended system and specification models, the distributed diagnosis problem under the immediate observation passing protocol is then converted to a decentralized diagnosis problem of our previous work, where the results are applied for verifying diagnosability and for synthesizing local diagnosers. Methods by which complexity of testing diagnosability and of online diagnosis can be reduced are presented. Finally, we compare the notions of diagnosability, codiagnosability, and diagnosability.