diff --git a/packages/cli/src/config/config.ts b/packages/cli/src/config/config.ts
index e7b332711d..ccd4f94857 100755
--- a/packages/cli/src/config/config.ts
+++ b/packages/cli/src/config/config.ts
@@ -605,7 +605,7 @@ export async function loadCliConfig(
     process.env['GEMINI_CLI_INTEGRATION_TEST'] === 'true' ||
     process.env['VITEST'] === 'true'
       ? false
-      : (settings.security?.folderTrust?.enabled ?? false);
+      : (settings.security?.folderTrust?.enabled ?? true);
   const trustedFolder =
     isWorkspaceTrusted(settings, cwd, {
       prompt: argv.prompt,
diff --git a/packages/core/src/policy/policy-engine.ts b/packages/core/src/policy/policy-engine.ts
index a3b9aa0992..63dcb1a9c5 100644
--- a/packages/core/src/policy/policy-engine.ts
+++ b/packages/core/src/policy/policy-engine.ts
@@ -543,13 +543,17 @@ export class PolicyEngine {
     let shellDirPath: string | undefined;
 
     const toolName = toolCall.name;
+    // eslint-disable-next-line @typescript-eslint/no-unsafe-type-assertion
+    const args = toolCall.args as { command?: unknown; dir_path?: unknown };
 
-    if (toolName && SHELL_TOOL_NAMES.includes(toolName)) {
+    if (
+      toolName &&
+      (SHELL_TOOL_NAMES.includes(toolName) ||
+        (typeof args?.command === 'string' && args.command.trim().length > 0))
+    ) {
       isShellCommand = true;
-      // eslint-disable-next-line @typescript-eslint/no-unsafe-type-assertion
-      const args = toolCall.args as { command?: string; dir_path?: string };
-      command = args?.command;
-      shellDirPath = args?.dir_path;
+      command = args.command as string;
+      shellDirPath = typeof args.dir_path === 'string' ? args.dir_path : undefined;
     }
 
     // Find the first matching rule (already sorted by priority)
@@ -645,7 +649,7 @@ export class PolicyEngine {
       debugLogger.debug(
         `[PolicyEngine.check] NO MATCH - using default decision: ${this.defaultDecision}`,
       );
-      if (toolName && SHELL_TOOL_NAMES.includes(toolName)) {
+      if (isShellCommand && toolName) {
         let heuristicDecision = this.defaultDecision;
         if (!skipHeuristics && command) {
           heuristicDecision = await this.applyShellHeuristics(
diff --git a/packages/core/src/tools/mcp-tool.test.ts b/packages/core/src/tools/mcp-tool.test.ts
index 0a0b85d33f..cf13a973a7 100644
--- a/packages/core/src/tools/mcp-tool.test.ts
+++ b/packages/core/src/tools/mcp-tool.test.ts
@@ -252,7 +252,9 @@ describe('DiscoveredMCPTool', () => {
         mockToolSuccessResultObject,
       );
       expect(toolResult.llmContent).toEqual([
-        { text: stringifiedResponseContent },
+        {
+          text: `<mcp_output tool="${serverToolName}">\n${stringifiedResponseContent}\n</mcp_output>`,
+        },
       ]);
       expect(toolResult.returnDisplay).toBe(stringifiedResponseContent);
     });
@@ -435,7 +437,9 @@ describe('DiscoveredMCPTool', () => {
           mockToolSuccessResultObject,
         );
         expect(toolResult.llmContent).toEqual([
-          { text: stringifiedResponseContent },
+          {
+            text: `<mcp_output tool="${serverToolName}">\n${stringifiedResponseContent}\n</mcp_output>`,
+          },
         ]);
         expect(toolResult.returnDisplay).toBe(stringifiedResponseContent);
       },
@@ -456,7 +460,11 @@ describe('DiscoveredMCPTool', () => {
         abortSignal: new AbortController().signal,
       });
       // 1. Assert that the llmContent sent to the scheduler is a clean Part array.
-      expect(toolResult.llmContent).toEqual([{ text: successMessage }]);
+      expect(toolResult.llmContent).toEqual([
+        {
+          text: `<mcp_output tool="${serverToolName}">\n${successMessage}\n</mcp_output>`,
+        },
+      ]);
 
       // 2. Assert that the display output is the simple text message.
       expect(toolResult.returnDisplay).toBe(successMessage);
@@ -482,7 +490,7 @@ describe('DiscoveredMCPTool', () => {
       );
 
       const invocation = tool.build(params);
-      const toolResult = await invocation.execute({
+      const toolResult: ToolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
@@ -515,12 +523,12 @@ describe('DiscoveredMCPTool', () => {
       );
 
       const invocation = tool.build(params);
-      const toolResult = await invocation.execute({
+      const toolResult: ToolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
         {
-          text: 'Resource Link: My Resource at file:///path/to/thing',
+          text: `[Tool '${serverToolName}' provided a resource link: My Resource at file:///path/to/thing]`,
         },
       ]);
       expect(toolResult.returnDisplay).toBe(
@@ -550,7 +558,9 @@ describe('DiscoveredMCPTool', () => {
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
-        { text: 'This is the text content.' },
+        {
+          text: `<mcp_resource_output tool="${serverToolName}" uri="file:///path/to/text.txt">\nThis is the text content.\n</mcp_resource_output>`,
+        },
       ]);
       expect(toolResult.returnDisplay).toBe('This is the text content.');
     });
@@ -573,7 +583,7 @@ describe('DiscoveredMCPTool', () => {
       );
 
       const invocation = tool.build(params);
-      const toolResult = await invocation.execute({
+      const toolResult: ToolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
@@ -609,11 +619,13 @@ describe('DiscoveredMCPTool', () => {
       );
 
       const invocation = tool.build(params);
-      const toolResult = await invocation.execute({
+      const toolResult: ToolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
-        { text: 'First part.' },
+        {
+          text: `<mcp_output tool="${serverToolName}">\nFirst part.\n</mcp_output>`,
+        },
         {
           text: `[Tool '${serverToolName}' provided the following image data with mime-type: image/jpeg]`,
         },
@@ -623,7 +635,9 @@ describe('DiscoveredMCPTool', () => {
             data: 'BASE64_IMAGE_DATA',
           },
         },
-        { text: 'Second part.' },
+        {
+          text: `<mcp_output tool="${serverToolName}">\nSecond part.\n</mcp_output>`,
+        },
       ]);
       expect(toolResult.returnDisplay).toBe(
         'First part.\n[Image: image/jpeg]\nSecond part.',
@@ -645,7 +659,11 @@ describe('DiscoveredMCPTool', () => {
       const toolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
-      expect(toolResult.llmContent).toEqual([{ text: 'Valid part.' }]);
+      expect(toolResult.llmContent).toEqual([
+        {
+          text: `<mcp_output tool="${serverToolName}">\nValid part.\n</mcp_output>`,
+        },
+      ]);
       expect(toolResult.returnDisplay).toBe(
         'Valid part.\n[Unknown content type: future_block]',
       );
@@ -681,15 +699,19 @@ describe('DiscoveredMCPTool', () => {
       );
 
       const invocation = tool.build(params);
-      const toolResult = await invocation.execute({
+      const toolResult: ToolResult = await invocation.execute({
         abortSignal: new AbortController().signal,
       });
       expect(toolResult.llmContent).toEqual([
-        { text: 'Here is a resource.' },
         {
-          text: 'Resource Link: My Resource at file:///path/to/resource',
+          text: `<mcp_output tool="${serverToolName}">\nHere is a resource.\n</mcp_output>`,
+        },
+        {
+          text: `[Tool '${serverToolName}' provided a resource link: My Resource at file:///path/to/resource]`,
+        },
+        {
+          text: `<mcp_resource_output tool="${serverToolName}" uri="file:///path/to/text.txt">\nEmbedded text content.\n</mcp_resource_output>`,
         },
-        { text: 'Embedded text content.' },
         {
           text: `[Tool '${serverToolName}' provided the following image data with mime-type: image/jpeg]`,
         },
@@ -771,7 +793,11 @@ describe('DiscoveredMCPTool', () => {
           abortSignal: controller.signal,
         });
 
-        expect(result.llmContent).toEqual([{ text: 'Success' }]);
+        expect(result.llmContent).toEqual([
+          {
+            text: `<mcp_output tool="${serverToolName}">\nSuccess\n</mcp_output>`,
+          },
+        ]);
         expect(result.returnDisplay).toBe('Success');
         expect(mockCallTool).toHaveBeenCalledWith([
           { name: serverToolName, args: params },
diff --git a/packages/core/src/tools/mcp-tool.ts b/packages/core/src/tools/mcp-tool.ts
index caaba717d1..be2dbbc858 100644
--- a/packages/core/src/tools/mcp-tool.ts
+++ b/packages/core/src/tools/mcp-tool.ts
@@ -132,6 +132,7 @@ type McpMediaBlock = {
 type McpResourceBlock = {
   type: 'resource';
   resource: {
+    uri?: string;
     text?: string;
     blob?: string;
     mimeType?: string;
@@ -447,8 +448,23 @@ export class DiscoveredMCPTool extends BaseDeclarativeTool<
   }
 }
 
-function transformTextBlock(block: McpTextBlock): Part {
-  return { text: block.text };
+function escapeHtml(text: string): string {
+  return text
+    .replace(/&/g, '&amp;')
+    .replace(/</g, '&lt;')
+    .replace(/>/g, '&gt;');
+}
+
+function escapeAttribute(text: string): string {
+  return escapeHtml(text).replace(/"/g, '&quot;').replace(/'/g, '&#39;');
+}
+
+function transformTextBlock(block: McpTextBlock, toolName: string): Part {
+  return {
+    text: `<mcp_output tool="${escapeAttribute(toolName)}">\n${escapeHtml(
+      block.text,
+    )}\n</mcp_output>`,
+  };
 }
 
 function transformImageAudioBlock(
@@ -476,7 +492,13 @@ function transformResourceBlock(
 ): Part | Part[] | null {
   const resource = block.resource;
   if (resource?.text) {
-    return { text: resource.text };
+    return {
+      text: `<mcp_resource_output tool="${escapeAttribute(
+        toolName,
+      )}" uri="${escapeAttribute(
+        resource.uri || 'unknown',
+      )}">\n${escapeHtml(resource.text)}\n</mcp_resource_output>`,
+    };
   }
   if (resource?.blob) {
     const mimeType = resource.mimeType || 'application/octet-stream';
@@ -495,9 +517,14 @@ function transformResourceBlock(
   return null;
 }
 
-function transformResourceLinkBlock(block: McpResourceLinkBlock): Part {
+function transformResourceLinkBlock(
+  block: McpResourceLinkBlock,
+  toolName: string,
+): Part {
   return {
-    text: `Resource Link: ${block.title || block.name} at ${block.uri}`,
+    text: `[Tool '${toolName}' provided a resource link: ${
+      block.title || block.name
+    } at ${block.uri}]`,
   };
 }
 
@@ -521,14 +548,14 @@ function transformMcpContentToParts(sdkResponse: Part[]): Part[] {
     (block: McpContentBlock): Part | Part[] | null => {
       switch (block.type) {
         case 'text':
-          return transformTextBlock(block);
+          return transformTextBlock(block, toolName);
         case 'image':
         case 'audio':
           return transformImageAudioBlock(block, toolName);
         case 'resource':
           return transformResourceBlock(block, toolName);
         case 'resource_link':
-          return transformResourceLinkBlock(block);
+          return transformResourceLinkBlock(block, toolName);
         default:
           return null;
       }