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Due to the growing demands for system reliability and availability of large amounts of data, efficient fault detection techniques for dynamic systems are desired. In this paper, we consider fault detection in dynamic systems monitored by multiple sensors. Normal and faulty behaviors can be modeled as two hypotheses. Due to communication constraints, it is assumed that sensors can only send binary data to the fusion center. Under the assumption of independent and identically distributed (1ID) observations, we propose a distributed fault detection algorithm, including local detector design and decision fusion rule design, based on state estimation via particle filtering. Illustrative examples are presented to demonstrate the effectiveness of our approach.