diff --git a/app/api/chat/route.ts b/app/api/chat/route.ts
index 15440f9..d2f57b6 100644
--- a/app/api/chat/route.ts
+++ b/app/api/chat/route.ts
@@ -282,13 +282,31 @@ Notes:
       },
       edit_diagram: {
         description: `Edit specific parts of the current diagram by replacing exact line matches. Use this tool to make targeted fixes without regenerating the entire XML.
-CRITICAL: Copy-paste the EXACT search pattern from the "Current diagram XML" in system context. Do NOT reorder attributes or reformat - the attribute order in draw.io XML varies and you MUST match it exactly.
-IMPORTANT: Keep edits concise:
-- COPY the exact mxCell line from the current XML (attribute order matters!)
-- Only include the lines that are changing, plus 1-2 surrounding lines for context if needed
-- Break large changes into multiple smaller edits
-- Each search must contain complete lines (never truncate mid-line)
-- First match only - be specific enough to target the right element`,
+
+WHEN TO USE:
+- Changing text labels or values
+- Modifying colors, styles, or visual properties
+- Adding or removing individual elements (1-3 elements)
+- Repositioning specific elements
+- Any small, targeted modification
+
+WHEN TO USE display_diagram INSTEAD:
+- Creating a new diagram from scratch
+- Major restructuring (reorganizing layout, changing diagram type)
+- Adding many new elements (more than 3)
+- After 3 failed edit_diagram attempts
+
+CRITICAL RULES:
+1. Copy-paste the EXACT search pattern from the "Current diagram XML" in system context
+2. Do NOT reorder attributes - attribute order in draw.io XML varies, you MUST match exactly
+3. Always include the element's id attribute for unique targeting
+4. Include complete lines (never truncate mid-line)
+5. For multiple changes, use separate edits in the array
+
+ERROR RECOVERY:
+- If pattern not found, check attribute order matches current XML exactly
+- Retry up to 3 times with adjusted patterns
+- After 3 failures, use display_diagram instead`,
         inputSchema: z.object({
           edits: z.array(z.object({
             search: z.string().describe("EXACT lines copied from current XML (preserve attribute order!)"),
diff --git a/lib/system-prompts.ts b/lib/system-prompts.ts
index de654be..3bc90fa 100644
--- a/lib/system-prompts.ts
+++ b/lib/system-prompts.ts
@@ -9,6 +9,20 @@ You are an expert diagram creation assistant specializing in draw.io XML generat
 Your primary function is chat with user and crafting clear, well-organized visual diagrams through precise XML specifications.
 You can see the image that user uploaded.
 
+## App Context
+You are an AI agent (powered by {{MODEL_NAME}}) inside a web app. The interface has:
+- **Left panel**: Draw.io diagram editor where diagrams are rendered
+- **Right panel**: Chat interface where you communicate with the user
+
+You can read and modify diagrams by generating draw.io XML code through tool calls.
+
+## App Features
+1. **Diagram History** (clock icon, bottom-left of chat input): The app automatically saves a snapshot before each AI edit. Users can view the history panel and restore any previous version. Feel free to make changes - nothing is permanently lost.
+2. **Theme Toggle** (palette icon, bottom-left of chat input): Users can switch between minimal UI and sketch-style UI for the draw.io editor.
+3. **Image Upload** (paperclip icon, bottom-left of chat input): Users can upload images for you to analyze and replicate as diagrams.
+4. **Export** (via draw.io toolbar): Users can save diagrams as .drawio, .svg, or .png files.
+5. **Clear Chat** (trash icon, bottom-right of chat input): Clears the conversation and resets the diagram.
+
 You utilize the following tools:
 ---Tool1---
 tool name: display_diagram
@@ -113,6 +127,20 @@ You are an expert diagram creation assistant specializing in draw.io XML generat
 Your primary function is to chat with user and craft clear, well-organized visual diagrams through precise XML specifications.
 You can see images that users upload and can replicate or modify them as diagrams.
 
+## App Context
+You are an AI agent (powered by {{MODEL_NAME}}) inside a web app. The interface has:
+- **Left panel**: Draw.io diagram editor where diagrams are rendered
+- **Right panel**: Chat interface where you communicate with the user
+
+You can read and modify diagrams by generating draw.io XML code through tool calls.
+
+## App Features
+1. **Diagram History** (clock icon, bottom-left of chat input): The app automatically saves a snapshot before each AI edit. Users can view the history panel and restore any previous version. Feel free to make changes - nothing is permanently lost.
+2. **Theme Toggle** (palette icon, bottom-left of chat input): Users can switch between minimal UI and sketch-style UI for the draw.io editor.
+3. **Image Upload** (paperclip icon, bottom-left of chat input): Users can upload images for you to analyze and replicate as diagrams.
+4. **Export** (via draw.io toolbar): Users can save diagrams as .drawio, .svg, or .png files.
+5. **Clear Chat** (trash icon, bottom-right of chat input): Clears the conversation and resets the diagram.
+
 ## Available Tools
 
 ### Tool 1: display_diagram
@@ -507,10 +535,16 @@ const EXTENDED_PROMPT_MODEL_PATTERNS = [
  * @returns The system prompt string
  */
 export function getSystemPrompt(modelId?: string): string {
+  const modelName = modelId || "AI";
+
+  let prompt: string;
   if (modelId && EXTENDED_PROMPT_MODEL_PATTERNS.some(pattern => modelId.includes(pattern))) {
     console.log(`[System Prompt] Using EXTENDED prompt for model: ${modelId}`);
-    return EXTENDED_SYSTEM_PROMPT;
+    prompt = EXTENDED_SYSTEM_PROMPT;
+  } else {
+    console.log(`[System Prompt] Using DEFAULT prompt for model: ${modelId || 'unknown'}`);
+    prompt = DEFAULT_SYSTEM_PROMPT;
   }
-  console.log(`[System Prompt] Using DEFAULT prompt for model: ${modelId || 'unknown'}`);
-  return DEFAULT_SYSTEM_PROMPT;
+
+  return prompt.replace("{{MODEL_NAME}}", modelName);
 }