feat: add VSCode setting for HTML entity unescaping in diff tools

- Add unescapeHtmlEntitiesInDiffs setting to global-settings schema
- Modify applyDiffTool.ts to use setting instead of hardcoded behavior
- Modify multiApplyDiffTool.ts to use setting instead of hardcoded behavior
- Add comprehensive tests for setting-based behavior
- Default setting to false to preserve current behavior
- Only applies to non-Claude models when enabled

Addresses feedback from @daniel-lxs in PR #5904

packages/types/src/global-settings.ts

@@ -88,6 +88,7 @@ export const globalSettingsSchema = z.object({
 	rateLimitSeconds: z.number().optional(),
 	diffEnabled: z.boolean().optional(),
 	fuzzyMatchThreshold: z.number().optional(),
+	unescapeHtmlEntitiesInDiffs: z.boolean().optional(),
 	experiments: experimentsSchema.optional(),
 
 	codebaseIndexModels: codebaseIndexModelsSchema.optional(),
@@ -224,6 +225,7 @@ export const EVALS_SETTINGS: RooCodeSettings = {
 
 	diffEnabled: true,
 	fuzzyMatchThreshold: 1,
+	unescapeHtmlEntitiesInDiffs: false,
 
 	enableCheckpoints: false,
 

src/core/tools/__tests__/applyDiffHtmlEntity.spec.ts

@@ -32,6 +32,13 @@ describe("HTML Entity Handling in apply_diff Tools", () => {
 			api: {
 				getModel: vi.fn().mockReturnValue({ id: "gpt-4" }), // Non-Claude model
 			},
+			providerRef: {
+				deref: vi.fn().mockReturnValue({
+					getState: vi.fn().mockResolvedValue({
+						unescapeHtmlEntitiesInDiffs: false, // Default to false
+					}),
+				}),
+			},
 			diffStrategy: {
 				applyDiff: vi.fn().mockResolvedValue({
 					success: true,
@@ -256,4 +263,123 @@ describe("HTML Entity Handling in apply_diff Tools", () => {
 			)
 		})
 	})
+
+	describe("Setting-based HTML entity unescaping", () => {
+		it("should unescape HTML entities when setting is enabled for non-Claude models", async () => {
+			// Enable the setting
+			mockCline.providerRef.deref.mockReturnValue({
+				getState: vi.fn().mockResolvedValue({
+					unescapeHtmlEntitiesInDiffs: true,
+				}),
+			})
+
+			const diffContent = `\<<<<<<< SEARCH
+-------
+// Comment with &amp; entity
+=======
+// Comment with &amp; entity updated
+>>>>>>> REPLACE`
+
+			mockBlock = {
+				params: {
+					path: "test.js",
+					diff: diffContent,
+				},
+				partial: false,
+			}
+
+			await applyDiffToolLegacy(
+				mockCline,
+				mockBlock,
+				mockAskApproval,
+				mockHandleError,
+				mockPushToolResult,
+				mockRemoveClosingTag,
+			)
+
+			// Verify that diffStrategy.applyDiff was called with unescaped content
+			const actualDiffContent = mockCline.diffStrategy.applyDiff.mock.calls[0][1]
+			expect(actualDiffContent).toContain("// Comment with & entity")
+			expect(actualDiffContent).toContain("// Comment with & entity updated")
+		})
+
+		it("should not unescape HTML entities when setting is disabled for non-Claude models", async () => {
+			// Disable the setting (default behavior)
+			mockCline.providerRef.deref.mockReturnValue({
+				getState: vi.fn().mockResolvedValue({
+					unescapeHtmlEntitiesInDiffs: false,
+				}),
+			})
+
+			const diffContent = `\<<<<<<< SEARCH
+-------
+// Comment with &amp; entity
+=======
+// Comment with &amp; entity updated
+>>>>>>> REPLACE`
+
+			mockBlock = {
+				params: {
+					path: "test.js",
+					diff: diffContent,
+				},
+				partial: false,
+			}
+
+			await applyDiffToolLegacy(
+				mockCline,
+				mockBlock,
+				mockAskApproval,
+				mockHandleError,
+				mockPushToolResult,
+				mockRemoveClosingTag,
+			)
+
+			// Verify that diffStrategy.applyDiff was called with original content (not unescaped)
+			const actualDiffContent = mockCline.diffStrategy.applyDiff.mock.calls[0][1]
+			expect(actualDiffContent).toContain("// Comment with &amp; entity")
+			expect(actualDiffContent).toContain("// Comment with &amp; entity updated")
+		})
+
+		it("should never unescape HTML entities for Claude models regardless of setting", async () => {
+			// Enable the setting
+			mockCline.providerRef.deref.mockReturnValue({
+				getState: vi.fn().mockResolvedValue({
+					unescapeHtmlEntitiesInDiffs: true,
+				}),
+			})
+
+			// Set up Claude model
+			mockCline.api.getModel.mockReturnValue({ id: "claude-3-sonnet" })
+
+			const diffContent = `\<<<<<<< SEARCH
+-------
+// Comment with &amp; entity
+=======
+// Comment with &amp; entity updated
+>>>>>>> REPLACE`
+
+			mockBlock = {
+				params: {
+					path: "test.js",
+					diff: diffContent,
+				},
+				partial: false,
+			}
+
+			await applyDiffToolLegacy(
+				mockCline,
+				mockBlock,
+				mockAskApproval,
+				mockHandleError,
+				mockPushToolResult,
+				mockRemoveClosingTag,
+			)
+
+			// Verify that diffStrategy.applyDiff was called with original content (not unescaped)
+			const actualDiffContent = mockCline.diffStrategy.applyDiff.mock.calls[0][1]
+			expect(actualDiffContent).toContain("// Comment with &amp; entity")
+			expect(actualDiffContent).toContain("// Comment with &amp; entity updated")
+		})
+	})
 })

src/core/tools/applyDiffTool.ts

@@ -10,6 +10,7 @@ import { ToolUse, RemoveClosingTag, AskApproval, HandleError, PushToolResult } f
 import { formatResponse } from "../prompts/responses"
 import { fileExistsAtPath } from "../../utils/fs"
 import { RecordSource } from "../context-tracking/FileContextTrackerTypes"
+import { unescapeHtmlEntities } from "../../utils/text-normalization"
 
 export async function applyDiffToolLegacy(
 	cline: Task,
@@ -22,6 +23,16 @@ export async function applyDiffToolLegacy(
 	const relPath: string | undefined = block.params.path
 	let diffContent: string | undefined = block.params.diff
 
+	// Apply HTML entity unescaping based on user setting
+	if (diffContent) {
+		const state = (await cline.providerRef.deref()?.getState()) ?? {}
+		const unescapeHtmlEntitiesInDiffs = (state as any).unescapeHtmlEntitiesInDiffs ?? false
+
+		if (unescapeHtmlEntitiesInDiffs && !cline.api.getModel().id.includes("claude")) {
+			diffContent = unescapeHtmlEntities(diffContent)
+		}
+	}
+
 	const sharedMessageProps: ClineSayTool = {
 		tool: "appliedDiff",
 		path: getReadablePath(cline.cwd, removeClosingTag("path", relPath)),

src/core/tools/multiApplyDiffTool.ts

@@ -10,6 +10,7 @@ import { ToolUse, RemoveClosingTag, AskApproval, HandleError, PushToolResult } f
 import { formatResponse } from "../prompts/responses"
 import { fileExistsAtPath } from "../../utils/fs"
 import { RecordSource } from "../context-tracking/FileContextTrackerTypes"
+import { unescapeHtmlEntities } from "../../utils/text-normalization"
 import { parseXml } from "../../utils/xml"
 import { EXPERIMENT_IDS, experiments } from "../../shared/experiments"
 import { applyDiffToolLegacy } from "./applyDiffTool"
@@ -409,8 +410,17 @@ Original error: ${errorMessage}`
 				let successCount = 0
 				let formattedError = ""
 
-				// Use diff items as-is without HTML entity unescaping to prevent search mismatches
-				const processedDiffItems = diffItems
+				// Apply HTML entity unescaping based on user setting
+				let processedDiffItems = diffItems
+				const state = (await cline.providerRef.deref()?.getState()) ?? {}
+				const unescapeHtmlEntitiesInDiffs = (state as any).unescapeHtmlEntitiesInDiffs ?? false
+
+				if (unescapeHtmlEntitiesInDiffs && !cline.api.getModel().id.includes("claude")) {
+					processedDiffItems = diffItems.map((item) => ({
+						...item,
+						content: item.content ? unescapeHtmlEntities(item.content) : item.content,
+					}))
+				}
 
 				// Apply all diffs at once with the array-based method
 				const diffResult = (await cline.diffStrategy?.applyDiff(originalContent, processedDiffItems)) ?? {