Python: Fix hosted MCP tool approval flow for all session/streaming combinations

[giles17]

Motivation and Context

Problem

Hosted MCP tools (e.g., Microsoft Learn MCP) with require_approval set were broken in multiple ways:

1. Function invocation layer intercepted hosted MCP approvals — _collect_approval_responses() in _tools.py treated all function_approval_response
   contents as local tool approvals. For hosted MCP approvals, this caused _replace_approval_contents_with_results() to mutate the messages — replacing
   mcp_approval_request with a bare function_call and mcp_approval_response with a function_result. The API rejected these mutated messages with "No tool output found for function call".

2. Streaming + session: session.service_session_id was never set — The code that propagates conversation_id to the session only ran inside _post_hook, a
   result hook that requires get_final_response(). Users who just iterate the stream (async for update in agent.run(stream=True)) never triggered it, so the
   follow-up approval call had no previous_response_id — error: "MCP approval requests have approval responses but weren't passed as input".

3. Sample streaming loop accumulated duplicate approvals — handle_approvals_with_session_streaming in both hosted MCP samples re-appended the original query
   and all previous approval responses on each loop iteration, causing "Duplicate MCP approval response" errors when multiple approvals occurred.

Fix

_tools.py — Added _is_hosted_tool_approval() helper that checks for server_label in function_call.additional_properties (set by the responses client
when parsing mcp_approval_request events). Modified _collect_approval_responses() to skip hosted tool approvals so they pass through to the API untouched.

_agents.py — Added a _propagate_conversation_id transform hook on the streaming ResponseStream. This eagerly sets session.service_session_id as updates
arrive during iteration, rather than deferring to get_final_response(). The existing _post_hook is kept as a fallback.

Samples — Fixed handle_approvals_with_session_streaming in both OpenAI and Azure hosted MCP samples to reset new_input each loop iteration, sending only
new approval responses.

Description

Contribution Checklist

• The code builds clean without any errors or warnings
• The PR follows the Contribution Guidelines
• All unit tests pass, and I have added new tests where possible
• Is this a breaking change? If yes, add "[BREAKING]" prefix to the title of the PR.

[markwallace-microsoft]

Python Test Coverage Report •

File	Stmts	Miss	Cover	Missing
packages/core/agent_framework
_agents.py	331	43	87%	425, 429, 481, 846, 882, 898, 974–977, 1038–1040, 1161, 1177, 1179, 1192, 1198, 1234, 1236, 1245–1250, 1255, 1257, 1263–1264, 1271, 1273–1274, 1282–1283, 1286–1288, 1296–1297, 1299, 1304, 1306
_tools.py	829	89	89%	165–166, 303, 305, 323–325, 332, 350, 364, 371, 378, 394, 396, 403, 440, 465, 469, 486–488, 535–537, 600, 622, 685–691, 727, 738–749, 771–773, 778, 782, 796–798, 837, 906, 916, 926, 982, 1013, 1032, 1294, 1351, 1371, 1442–1446, 1568, 1572, 1596, 1622, 1624, 1640, 1642, 1727, 1757, 1814, 1882, 2065–2066, 2093, 2101, 2114, 2124–2125, 2160, 2216
TOTAL	21244	3303	84%

Python Unit Test Overview

Tests	Skipped	Failures	Errors	Time
4190	239 💤	0 ❌	0 🔥	1m 9s ⏱️

[Copilot]

Pull request overview

Fixes hosted MCP tool approval flows across session + streaming combinations by preventing local tool-invocation logic from mutating hosted MCP approval messages, eagerly propagating conversation_id into sessions during streaming iteration, and correcting sample input accumulation logic.

Changes:

• Core: Add hosted-tool approval detection and skip local interception of hosted MCP approvals.
• Core: Propagate conversation_id to session.service_session_id during streaming iteration (without requiring get_final_response()).
• Samples/tests: Fix streaming approval loops to only send newly collected approval responses; add regression tests for hosted MCP passthrough and streaming session id propagation.

Reviewed changes

Copilot reviewed 6 out of 6 changed files in this pull request and generated 1 comment.

Show a summary per file

File	Description
python/packages/core/agent_framework/_tools.py	Add _is_hosted_tool_approval and exclude hosted approvals from local approval-response collection.
python/packages/core/agent_framework/_agents.py	Add streaming transform hook to eagerly set session.service_session_id from conversation_id.
python/packages/core/tests/core/test_function_invocation_logic.py	Add tests ensuring hosted MCP approvals pass through without mutation.
python/packages/core/tests/core/test_agents.py	Add test ensuring streaming sets session.service_session_id without get_final_response().
python/samples/02-agents/providers/openai/openai_responses_client_with_hosted_mcp.py	Load .env and fix streaming approval loop to avoid duplicate inputs.
python/samples/02-agents/providers/azure_openai/azure_responses_client_with_hosted_mcp.py	Fix streaming approval loop to avoid duplicate inputs; update agent instructions text.