diff --git a/CLAUDE.md b/CLAUDE.md
index e2d84c1e..09a020bd 100644
--- a/CLAUDE.md
+++ b/CLAUDE.md
@@ -191,6 +191,7 @@ When modifying a module with a spec, read the spec first. Code follows spec; spe
 | `src/setup/` | `src/setup/README.md` |
 | `src/tools/` | `src/tools/README.md` |
 | `src/workspace/` | `src/workspace/README.md` |
+| `crates/ironclaw_engine/` | `crates/ironclaw_engine/CLAUDE.md` |
 | `tests/e2e/` | `tests/e2e/CLAUDE.md` |
 
 ## Job State Machine
diff --git a/crates/ironclaw_engine/CLAUDE.md b/crates/ironclaw_engine/CLAUDE.md
new file mode 100644
index 00000000..ad62a5c7
--- /dev/null
+++ b/crates/ironclaw_engine/CLAUDE.md
@@ -0,0 +1,139 @@
+# IronClaw Engine Crate
+
+Unified thread-capability-CodeAct execution model. Replaces ~10 separate abstractions (Session, Job, Routine, Channel, Tool, Skill, Hook, Observer, Extension, LoopDelegate) with 5 primitives.
+
+## Full Architecture Plan
+
+See `docs/plans/2026-03-20-engine-v2-architecture.md` for the 8-phase roadmap.
+
+## Five Primitives
+
+| Primitive | Purpose | Replaces |
+|-----------|---------|----------|
+| **Thread** | Unit of work with lifecycle, parent-child tree, capability leases | Session + Job + Routine + Sub-agent |
+| **Step** | Unit of execution (one LLM call + its action executions) | Agentic loop iteration + tool calls |
+| **Capability** | Unit of effect (actions + knowledge + policies) | Tool + Skill + Hook + Extension |
+| **MemoryDoc** | Unit of durable knowledge (summaries, lessons, playbooks) | Workspace memory blobs |
+| **Project** | Unit of context (scopes memory, threads, missions) | Flat workspace namespace |
+
+## Build & Test
+
+```bash
+cargo check -p ironclaw_engine
+cargo clippy -p ironclaw_engine --all-targets -- -D warnings
+cargo test -p ironclaw_engine
+```
+
+## Module Map
+
+```
+src/
+├── lib.rs                # Public API, re-exports
+├── types/                # Core data structures (no async, no I/O)
+│   ├── thread.rs         # Thread, ThreadId, ThreadState (state machine), ThreadType, ThreadConfig
+│   ├── step.rs           # Step, StepId, LlmResponse, ActionCall, ActionResult, TokenUsage
+│   ├── capability.rs     # Capability, ActionDef, EffectType, CapabilityLease, PolicyRule
+│   ├── memory.rs         # MemoryDoc, DocId, DocType (Summary/Lesson/Playbook/Issue/Spec/Note)
+│   ├── project.rs        # Project, ProjectId
+│   ├── event.rs          # ThreadEvent, EventKind (16 variants for event sourcing)
+│   ├── message.rs        # ThreadMessage, MessageRole
+│   ├── provenance.rs     # Provenance enum (User/System/ToolOutput/LlmGenerated/etc.)
+│   └── error.rs          # EngineError, ThreadError, StepError, CapabilityError
+├── traits/               # External dependency abstractions (host implements these)
+│   ├── llm.rs            # LlmBackend trait
+│   ├── store.rs          # Store trait (18 CRUD methods)
+│   └── effect.rs         # EffectExecutor trait
+├── capability/           # Capability management
+│   ├── registry.rs       # CapabilityRegistry — register/get/list capabilities
+│   ├── lease.rs          # LeaseManager — grant/check/consume/revoke/expire leases
+│   └── policy.rs         # PolicyEngine — deterministic effect-level allow/deny/approve
+├── runtime/              # Thread lifecycle management
+│   ├── manager.rs        # ThreadManager — spawn, stop, inject messages, join threads
+│   ├── tree.rs           # ThreadTree — parent-child relationships
+│   └── messaging.rs      # ThreadSignal, ThreadOutcome, signal channels
+├── executor/             # Step execution
+│   ├── loop_engine.rs    # ExecutionLoop — core loop replacing run_agentic_loop()
+│   ├── structured.rs     # Tier 0: structured tool call execution
+│   ├── context.rs        # Context builder (messages + actions from leases)
+│   └── intent.rs         # Tool intent nudge detection
+├── memory/               # Memory document system
+│   ├── store.rs          # MemoryStore — project-scoped doc CRUD
+│   └── retrieval.rs      # RetrievalEngine — context building (stub, Phase 4)
+└── reflection/           # Post-thread reflection (stub, Phase 4)
+    └── mod.rs
+```
+
+## Thread State Machine
+
+```
+Created → Running → Waiting → Running (resume)
+                  → Suspended → Running (resume)
+                  → Completed → Reflecting → Done
+                  → Failed
+```
+
+Validated by `ThreadState::can_transition_to()`. Terminal states: `Done`, `Failed`.
+
+## External Trait Boundaries
+
+The engine defines three traits that the host crate implements:
+
+| Trait | Purpose | Host wraps |
+|-------|---------|------------|
+| `LlmBackend` | `complete(messages, actions, config) -> LlmOutput` | `LlmProvider` |
+| `Store` | Thread/Step/Event/Project/Doc/Lease CRUD | `Database` (PostgreSQL + libSQL) |
+| `EffectExecutor` | `execute_action(name, params, lease, ctx) -> ActionResult` | `ToolRegistry` + `SafetyLayer` |
+
+## Execution Loop
+
+`ExecutionLoop::run()` mirrors `run_agentic_loop()`:
+
+1. Check signals (Stop, InjectMessage) via `mpsc::Receiver`
+2. Build context (messages + available actions from active leases)
+3. Call LLM via `LlmBackend::complete()`
+4. If text: check tool intent nudge, return if final response
+5. If action calls: for each call, find lease → check policy → consume use → execute via `EffectExecutor` → record result
+6. Record Step, emit ThreadEvents
+7. Repeat until: text response, stop signal, max iterations, or approval needed
+
+## Capability Leases
+
+Threads don't have static permissions. They receive **leases** — scoped, time-limited, use-limited grants:
+
+```rust
+CapabilityLease {
+    thread_id, capability_name, granted_actions,
+    expires_at: Option<DateTime>,  // time-limited
+    max_uses: Option<u32>,         // use-limited
+    revoked: bool,
+}
+```
+
+The `PolicyEngine` evaluates actions against leases deterministically: `Deny > RequireApproval > Allow`.
+
+## Effect Types
+
+Every action declares its side effects. The policy engine uses these for allow/deny:
+
+```
+ReadLocal, ReadExternal, WriteLocal, WriteExternal,
+CredentialedNetwork, Compute, Financial
+```
+
+## Key Design Decisions
+
+1. **No dependency on main `ironclaw` crate** — clean separation, testable in isolation
+2. **No safety logic** — sanitization/leak detection is applied at the adapter boundary (`EffectExecutor` impl)
+3. **Event sourcing from day one** — every thread records a complete event log via `ThreadEvent`
+4. **Tier 0 only (MVP)** — structured tool calls. CodeAct (Tier 1-3) added in Phase 3
+5. **Engine owns its message type** — `ThreadMessage` is simpler than `ChatMessage`; bridge adapters handle conversion
+
+## Code Style
+
+Follows the main crate's conventions from `/CLAUDE.md`:
+- No `.unwrap()` or `.expect()` in production code (tests are fine)
+- `thiserror` for error types
+- Map errors with context
+- Prefer strong types over strings (newtypes for IDs)
+- All I/O is async with tokio
+- `Arc<T>` for shared state, `RwLock` for concurrent access
diff --git a/crates/ironclaw_engine/src/capability/lease.rs b/crates/ironclaw_engine/src/capability/lease.rs
new file mode 100644
index 00000000..1f95a79b
--- /dev/null
+++ b/crates/ironclaw_engine/src/capability/lease.rs
@@ -0,0 +1,225 @@
+//! Lease manager — grants, validates, and expires capability leases.
+
+use std::collections::HashMap;
+
+use chrono::Utc;
+use tokio::sync::RwLock;
+
+use crate::types::capability::{CapabilityLease, LeaseId};
+use crate::types::error::EngineError;
+use crate::types::thread::ThreadId;
+
+/// Manages the lifecycle of capability leases.
+///
+/// Leases are the mechanism by which threads gain access to capabilities.
+/// They are scoped (time-limited, use-limited, action-restricted) to bound
+/// the blast radius of any single thread.
+pub struct LeaseManager {
+    active: RwLock<HashMap<LeaseId, CapabilityLease>>,
+}
+
+impl LeaseManager {
+    pub fn new() -> Self {
+        Self {
+            active: RwLock::new(HashMap::new()),
+        }
+    }
+
+    /// Grant a new lease to a thread.
+    pub async fn grant(
+        &self,
+        thread_id: ThreadId,
+        capability_name: impl Into<String>,
+        granted_actions: Vec<String>,
+        duration: Option<chrono::Duration>,
+        max_uses: Option<u32>,
+    ) -> CapabilityLease {
+        let now = Utc::now();
+        let lease = CapabilityLease {
+            id: LeaseId::new(),
+            thread_id,
+            capability_name: capability_name.into(),
+            granted_actions,
+            granted_at: now,
+            expires_at: duration.map(|d| now + d),
+            max_uses,
+            uses_remaining: max_uses,
+            revoked: false,
+        };
+        self.active.write().await.insert(lease.id, lease.clone());
+        lease
+    }
+
+    /// Check whether a lease is still valid. Returns the lease if valid.
+    pub async fn check(&self, lease_id: LeaseId) -> Result<CapabilityLease, EngineError> {
+        let leases = self.active.read().await;
+        let lease = leases.get(&lease_id).ok_or_else(|| EngineError::LeaseExpired {
+            capability_name: format!("lease {lease_id:?} not found"),
+        })?;
+        if !lease.is_valid() {
+            return Err(EngineError::LeaseExpired {
+                capability_name: lease.capability_name.clone(),
+            });
+        }
+        Ok(lease.clone())
+    }
+
+    /// Consume one use of a lease. Returns error if the lease is invalid or exhausted.
+    pub async fn consume_use(&self, lease_id: LeaseId) -> Result<(), EngineError> {
+        let mut leases = self.active.write().await;
+        let lease = leases.get_mut(&lease_id).ok_or_else(|| EngineError::LeaseExpired {
+            capability_name: format!("lease {lease_id:?} not found"),
+        })?;
+        if !lease.is_valid() {
+            return Err(EngineError::LeaseExpired {
+                capability_name: lease.capability_name.clone(),
+            });
+        }
+        if !lease.consume_use() {
+            return Err(EngineError::LeaseExpired {
+                capability_name: lease.capability_name.clone(),
+            });
+        }
+        Ok(())
+    }
+
+    /// Revoke a lease by ID.
+    pub async fn revoke(&self, lease_id: LeaseId, _reason: &str) {
+        let mut leases = self.active.write().await;
+        if let Some(lease) = leases.get_mut(&lease_id) {
+            lease.revoked = true;
+        }
+    }
+
+    /// Remove all expired or revoked leases from the active set.
+    pub async fn expire_stale(&self) -> usize {
+        let mut leases = self.active.write().await;
+        let before = leases.len();
+        leases.retain(|_, lease| lease.is_valid());
+        before - leases.len()
+    }
+
+    /// Get all active (valid) leases for a thread.
+    pub async fn active_for_thread(&self, thread_id: ThreadId) -> Vec<CapabilityLease> {
+        let leases = self.active.read().await;
+        leases
+            .values()
+            .filter(|l| l.thread_id == thread_id && l.is_valid())
+            .cloned()
+            .collect()
+    }
+
+    /// Find the lease that grants a specific action to a thread.
+    pub async fn find_lease_for_action(
+        &self,
+        thread_id: ThreadId,
+        action_name: &str,
+    ) -> Option<CapabilityLease> {
+        let leases = self.active.read().await;
+        leases
+            .values()
+            .find(|l| l.thread_id == thread_id && l.is_valid() && l.covers_action(action_name))
+            .cloned()
+    }
+}
+
+impl Default for LeaseManager {
+    fn default() -> Self {
+        Self::new()
+    }
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::types::thread::ThreadId;
+
+    #[tokio::test]
+    async fn grant_and_check() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        let lease = mgr.grant(tid, "github", vec![], None, None).await;
+        assert!(mgr.check(lease.id).await.is_ok());
+    }
+
+    #[tokio::test]
+    async fn check_nonexistent_fails() {
+        let mgr = LeaseManager::new();
+        assert!(mgr.check(LeaseId::new()).await.is_err());
+    }
+
+    #[tokio::test]
+    async fn consume_use_works() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        let lease = mgr.grant(tid, "github", vec![], None, Some(2)).await;
+        assert!(mgr.consume_use(lease.id).await.is_ok());
+        assert!(mgr.consume_use(lease.id).await.is_ok());
+        assert!(mgr.consume_use(lease.id).await.is_err());
+    }
+
+    #[tokio::test]
+    async fn revoke_invalidates() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        let lease = mgr.grant(tid, "github", vec![], None, None).await;
+        mgr.revoke(lease.id, "test").await;
+        assert!(mgr.check(lease.id).await.is_err());
+    }
+
+    #[tokio::test]
+    async fn expire_stale_removes_revoked() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        let lease = mgr.grant(tid, "github", vec![], None, None).await;
+        mgr.revoke(lease.id, "done").await;
+        let removed = mgr.expire_stale().await;
+        assert_eq!(removed, 1);
+        assert!(mgr.active_for_thread(tid).await.is_empty());
+    }
+
+    #[tokio::test]
+    async fn active_for_thread_filters_correctly() {
+        let mgr = LeaseManager::new();
+        let t1 = ThreadId::new();
+        let t2 = ThreadId::new();
+        mgr.grant(t1, "github", vec![], None, None).await;
+        mgr.grant(t1, "memory", vec![], None, None).await;
+        mgr.grant(t2, "slack", vec![], None, None).await;
+        assert_eq!(mgr.active_for_thread(t1).await.len(), 2);
+        assert_eq!(mgr.active_for_thread(t2).await.len(), 1);
+    }
+
+    #[tokio::test]
+    async fn find_lease_for_action_respects_grants() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        mgr.grant(
+            tid,
+            "github",
+            vec!["create_issue".into(), "list_prs".into()],
+            None,
+            None,
+        )
+        .await;
+        assert!(mgr.find_lease_for_action(tid, "create_issue").await.is_some());
+        assert!(mgr.find_lease_for_action(tid, "delete_repo").await.is_none());
+    }
+
+    #[tokio::test]
+    async fn expired_lease_not_active() {
+        let mgr = LeaseManager::new();
+        let tid = ThreadId::new();
+        let lease = mgr
+            .grant(
+                tid,
+                "github",
+                vec![],
+                Some(chrono::Duration::seconds(-10)),
+                None,
+            )
+            .await;
+        assert!(mgr.check(lease.id).await.is_err());
+        assert!(mgr.active_for_thread(tid).await.is_empty());
+    }
+}
diff --git a/crates/ironclaw_engine/src/capability/mod.rs b/crates/ironclaw_engine/src/capability/mod.rs
index 4c6becc8..f325e8b5 100644
--- a/crates/ironclaw_engine/src/capability/mod.rs
+++ b/crates/ironclaw_engine/src/capability/mod.rs
@@ -1,4 +1,13 @@
 //! Capability management.
 //!
-//! Registry, lease management, and deterministic policy engine.
-//! Implemented in Phase 2.
+//! - [`CapabilityRegistry`] — stores known capabilities and their actions
+//! - [`LeaseManager`] — grants, validates, and expires capability leases
+//! - [`PolicyEngine`] — deterministic effect-level allow/deny/approve
+
+pub mod lease;
+pub mod policy;
+pub mod registry;
+
+pub use lease::LeaseManager;
+pub use policy::{PolicyDecision, PolicyEngine};
+pub use registry::CapabilityRegistry;
diff --git a/crates/ironclaw_engine/src/capability/policy.rs b/crates/ironclaw_engine/src/capability/policy.rs
new file mode 100644
index 00000000..ce6b610a
--- /dev/null
+++ b/crates/ironclaw_engine/src/capability/policy.rs
@@ -0,0 +1,283 @@
+//! Deterministic policy engine.
+//!
+//! Evaluates whether an action is allowed, denied, or requires approval
+//! based on effect types, capability policies, and thread leases.
+//! No LLM calls — purely deterministic.
+
+use crate::types::capability::{
+    ActionDef, CapabilityLease, EffectType, PolicyCondition, PolicyEffect, PolicyRule,
+};
+
+/// The result of a policy evaluation.
+#[derive(Debug, Clone, PartialEq, Eq)]
+pub enum PolicyDecision {
+    Allow,
+    Deny { reason: String },
+    RequireApproval { reason: String },
+}
+
+/// Deterministic policy engine.
+///
+/// Evaluation precedence: Deny > RequireApproval > Allow.
+/// Checks are evaluated in order: global policies, then capability policies,
+/// then action-level `requires_approval`, then effect-type checks against
+/// the lease's allowed effects.
+pub struct PolicyEngine {
+    global_policies: Vec<PolicyRule>,
+    /// Effect types that are always denied unless explicitly overridden.
+    denied_effects: Vec<EffectType>,
+}
+
+impl PolicyEngine {
+    pub fn new() -> Self {
+        Self {
+            global_policies: Vec::new(),
+            denied_effects: Vec::new(),
+        }
+    }
+
+    /// Add a global policy rule.
+    pub fn add_global_policy(&mut self, rule: PolicyRule) {
+        self.global_policies.push(rule);
+    }
+
+    /// Add an effect type that is always denied.
+    pub fn deny_effect(&mut self, effect: EffectType) {
+        self.denied_effects.push(effect);
+    }
+
+    /// Evaluate whether an action is allowed given a lease and capability policies.
+    pub fn evaluate(
+        &self,
+        action: &ActionDef,
+        lease: &CapabilityLease,
+        capability_policies: &[PolicyRule],
+    ) -> PolicyDecision {
+        // 1. Check lease validity
+        if !lease.is_valid() {
+            return PolicyDecision::Deny {
+                reason: format!("lease for {} is expired/revoked", lease.capability_name),
+            };
+        }
+
+        // 2. Check lease covers this action
+        if !lease.covers_action(&action.name) {
+            return PolicyDecision::Deny {
+                reason: format!(
+                    "lease for {} does not cover action {}",
+                    lease.capability_name, action.name
+                ),
+            };
+        }
+
+        // 3. Check denied effect types
+        for effect in &action.effects {
+            if self.denied_effects.contains(effect) {
+                return PolicyDecision::Deny {
+                    reason: format!("effect type {effect:?} is denied by global policy"),
+                };
+            }
+        }
+
+        // 4. Evaluate global policies
+        let mut decision = PolicyDecision::Allow;
+        for rule in &self.global_policies {
+            if rule_matches(rule, action) {
+                decision = merge_decision(decision, rule.effect, &rule.name);
+            }
+        }
+
+        // 5. Evaluate capability-level policies
+        for rule in capability_policies {
+            if rule_matches(rule, action) {
+                decision = merge_decision(decision, rule.effect, &rule.name);
+            }
+        }
+
+        // 6. Check action-level requires_approval
+        if action.requires_approval {
+            decision = merge_decision(
+                decision,
+                PolicyEffect::RequireApproval,
+                "action requires approval",
+            );
+        }
+
+        decision
+    }
+}
+
+impl Default for PolicyEngine {
+    fn default() -> Self {
+        Self::new()
+    }
+}
+
+/// Check whether a policy rule's condition matches the given action.
+fn rule_matches(rule: &PolicyRule, action: &ActionDef) -> bool {
+    match &rule.condition {
+        PolicyCondition::Always => true,
+        PolicyCondition::ActionMatches { pattern } => action.name.contains(pattern.as_str()),
+        PolicyCondition::EffectTypeIs(effect) => action.effects.contains(effect),
+    }
+}
+
+/// Merge a new policy effect into the current decision.
+/// Deny > RequireApproval > Allow.
+fn merge_decision(current: PolicyDecision, effect: PolicyEffect, source: &str) -> PolicyDecision {
+    match effect {
+        PolicyEffect::Deny => PolicyDecision::Deny {
+            reason: source.to_string(),
+        },
+        PolicyEffect::RequireApproval => match current {
+            PolicyDecision::Deny { .. } => current,
+            _ => PolicyDecision::RequireApproval {
+                reason: source.to_string(),
+            },
+        },
+        PolicyEffect::Allow => current,
+    }
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::types::capability::LeaseId;
+    use crate::types::thread::ThreadId;
+    use chrono::Utc;
+
+    fn make_action(name: &str, effects: Vec<EffectType>, requires_approval: bool) -> ActionDef {
+        ActionDef {
+            name: name.into(),
+            description: String::new(),
+            parameters_schema: serde_json::json!({}),
+            effects,
+            requires_approval,
+        }
+    }
+
+    fn make_lease() -> CapabilityLease {
+        CapabilityLease {
+            id: LeaseId::new(),
+            thread_id: ThreadId::new(),
+            capability_name: "test".into(),
+            granted_actions: vec![],
+            granted_at: Utc::now(),
+            expires_at: None,
+            max_uses: None,
+            uses_remaining: None,
+            revoked: false,
+        }
+    }
+
+    #[test]
+    fn allow_by_default() {
+        let engine = PolicyEngine::new();
+        let action = make_action("read_file", vec![EffectType::ReadLocal], false);
+        let lease = make_lease();
+        assert_eq!(engine.evaluate(&action, &lease, &[]), PolicyDecision::Allow);
+    }
+
+    #[test]
+    fn denied_effect_type() {
+        let mut engine = PolicyEngine::new();
+        engine.deny_effect(EffectType::Financial);
+        let action = make_action("transfer", vec![EffectType::Financial], false);
+        let lease = make_lease();
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::Deny { .. }
+        ));
+    }
+
+    #[test]
+    fn action_requires_approval() {
+        let engine = PolicyEngine::new();
+        let action = make_action("deploy", vec![EffectType::WriteExternal], true);
+        let lease = make_lease();
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::RequireApproval { .. }
+        ));
+    }
+
+    #[test]
+    fn global_policy_deny_overrides_approval() {
+        let mut engine = PolicyEngine::new();
+        engine.add_global_policy(PolicyRule {
+            name: "no external writes".into(),
+            condition: PolicyCondition::EffectTypeIs(EffectType::WriteExternal),
+            effect: PolicyEffect::Deny,
+        });
+        let action = make_action("deploy", vec![EffectType::WriteExternal], true);
+        let lease = make_lease();
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::Deny { .. }
+        ));
+    }
+
+    #[test]
+    fn capability_policy_requires_approval() {
+        let engine = PolicyEngine::new();
+        let action = make_action("create_issue", vec![EffectType::WriteExternal], false);
+        let lease = make_lease();
+        let cap_policies = vec![PolicyRule {
+            name: "approve writes".into(),
+            condition: PolicyCondition::EffectTypeIs(EffectType::WriteExternal),
+            effect: PolicyEffect::RequireApproval,
+        }];
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &cap_policies),
+            PolicyDecision::RequireApproval { .. }
+        ));
+    }
+
+    #[test]
+    fn expired_lease_denied() {
+        let engine = PolicyEngine::new();
+        let action = make_action("read", vec![EffectType::ReadLocal], false);
+        let mut lease = make_lease();
+        lease.revoked = true;
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::Deny { .. }
+        ));
+    }
+
+    #[test]
+    fn lease_not_covering_action_denied() {
+        let engine = PolicyEngine::new();
+        let action = make_action("delete_repo", vec![EffectType::WriteExternal], false);
+        let mut lease = make_lease();
+        lease.granted_actions = vec!["create_issue".into()];
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::Deny { .. }
+        ));
+    }
+
+    #[test]
+    fn action_matches_pattern() {
+        let mut engine = PolicyEngine::new();
+        engine.add_global_policy(PolicyRule {
+            name: "approve deletes".into(),
+            condition: PolicyCondition::ActionMatches {
+                pattern: "delete".into(),
+            },
+            effect: PolicyEffect::RequireApproval,
+        });
+        let action = make_action("delete_repo", vec![EffectType::WriteExternal], false);
+        let lease = make_lease();
+        assert!(matches!(
+            engine.evaluate(&action, &lease, &[]),
+            PolicyDecision::RequireApproval { .. }
+        ));
+
+        let action2 = make_action("create_issue", vec![EffectType::WriteExternal], false);
+        assert_eq!(
+            engine.evaluate(&action2, &lease, &[]),
+            PolicyDecision::Allow
+        );
+    }
+}
diff --git a/crates/ironclaw_engine/src/capability/registry.rs b/crates/ironclaw_engine/src/capability/registry.rs
new file mode 100644
index 00000000..1f226141
--- /dev/null
+++ b/crates/ironclaw_engine/src/capability/registry.rs
@@ -0,0 +1,169 @@
+//! Capability registry — stores capability definitions available to the system.
+
+use std::collections::HashMap;
+
+use crate::types::capability::{ActionDef, Capability};
+
+/// Registry of all known capabilities.
+///
+/// Capabilities are registered at startup (from extensions, built-in tools,
+/// etc.) and queried when granting leases or resolving action names.
+#[derive(Debug, Default)]
+pub struct CapabilityRegistry {
+    capabilities: HashMap<String, Capability>,
+}
+
+impl CapabilityRegistry {
+    pub fn new() -> Self {
+        Self::default()
+    }
+
+    /// Register a capability. Overwrites any existing capability with the same name.
+    pub fn register(&mut self, capability: Capability) {
+        self.capabilities.insert(capability.name.clone(), capability);
+    }
+
+    /// Look up a capability by name.
+    pub fn get(&self, name: &str) -> Option<&Capability> {
+        self.capabilities.get(name)
+    }
+
+    /// List all registered capabilities.
+    pub fn list(&self) -> Vec<&Capability> {
+        self.capabilities.values().collect()
+    }
+
+    /// Look up a specific action across all capabilities.
+    ///
+    /// Returns `(capability_name, action_def)` if found.
+    pub fn find_action(&self, action_name: &str) -> Option<(&str, &ActionDef)> {
+        for cap in self.capabilities.values() {
+            if let Some(action) = cap.actions.iter().find(|a| a.name == action_name) {
+                return Some((&cap.name, action));
+            }
+        }
+        None
+    }
+
+    /// Get an action definition from a specific capability.
+    pub fn get_action(&self, capability_name: &str, action_name: &str) -> Option<&ActionDef> {
+        self.capabilities
+            .get(capability_name)?
+            .actions
+            .iter()
+            .find(|a| a.name == action_name)
+    }
+
+    /// Collect all action definitions across all capabilities.
+    pub fn all_actions(&self) -> Vec<&ActionDef> {
+        self.capabilities
+            .values()
+            .flat_map(|c| c.actions.iter())
+            .collect()
+    }
+
+    /// Number of registered capabilities.
+    pub fn len(&self) -> usize {
+        self.capabilities.len()
+    }
+
+    pub fn is_empty(&self) -> bool {
+        self.capabilities.is_empty()
+    }
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::types::capability::EffectType;
+
+    fn test_capability() -> Capability {
+        Capability {
+            name: "github".into(),
+            description: "GitHub integration".into(),
+            actions: vec![
+                ActionDef {
+                    name: "create_issue".into(),
+                    description: "Create a GitHub issue".into(),
+                    parameters_schema: serde_json::json!({"type": "object"}),
+                    effects: vec![EffectType::WriteExternal, EffectType::CredentialedNetwork],
+                    requires_approval: false,
+                },
+                ActionDef {
+                    name: "list_prs".into(),
+                    description: "List pull requests".into(),
+                    parameters_schema: serde_json::json!({"type": "object"}),
+                    effects: vec![EffectType::ReadExternal, EffectType::CredentialedNetwork],
+                    requires_approval: false,
+                },
+            ],
+            knowledge: vec!["When creating issues, always add labels.".into()],
+            policies: vec![],
+        }
+    }
+
+    #[test]
+    fn register_and_get() {
+        let mut reg = CapabilityRegistry::new();
+        reg.register(test_capability());
+        assert_eq!(reg.len(), 1);
+        assert!(reg.get("github").is_some());
+        assert!(reg.get("slack").is_none());
+    }
+
+    #[test]
+    fn find_action_across_capabilities() {
+        let mut reg = CapabilityRegistry::new();
+        reg.register(test_capability());
+        let (cap_name, action) = reg.find_action("create_issue").unwrap();
+        assert_eq!(cap_name, "github");
+        assert_eq!(action.name, "create_issue");
+        assert!(reg.find_action("nonexistent").is_none());
+    }
+
+    #[test]
+    fn get_action_from_capability() {
+        let mut reg = CapabilityRegistry::new();
+        reg.register(test_capability());
+        assert!(reg.get_action("github", "list_prs").is_some());
+        assert!(reg.get_action("github", "delete_repo").is_none());
+        assert!(reg.get_action("slack", "list_prs").is_none());
+    }
+
+    #[test]
+    fn all_actions_collects_across_capabilities() {
+        let mut reg = CapabilityRegistry::new();
+        reg.register(test_capability());
+        reg.register(Capability {
+            name: "memory".into(),
+            description: "Memory tools".into(),
+            actions: vec![ActionDef {
+                name: "memory_search".into(),
+                description: "Search memory".into(),
+                parameters_schema: serde_json::json!({"type": "object"}),
+                effects: vec![EffectType::ReadLocal],
+                requires_approval: false,
+            }],
+            knowledge: vec![],
+            policies: vec![],
+        });
+        assert_eq!(reg.all_actions().len(), 3);
+    }
+
+    #[test]
+    fn overwrite_on_re_register() {
+        let mut reg = CapabilityRegistry::new();
+        reg.register(test_capability());
+        assert_eq!(reg.get("github").unwrap().actions.len(), 2);
+
+        reg.register(Capability {
+            name: "github".into(),
+            description: "Updated".into(),
+            actions: vec![],
+            knowledge: vec![],
+            policies: vec![],
+        });
+        assert_eq!(reg.get("github").unwrap().actions.len(), 0);
+        assert_eq!(reg.len(), 1);
+    }
+}
diff --git a/crates/ironclaw_engine/src/executor/context.rs b/crates/ironclaw_engine/src/executor/context.rs
new file mode 100644
index 00000000..0b43812f
--- /dev/null
+++ b/crates/ironclaw_engine/src/executor/context.rs
@@ -0,0 +1,24 @@
+//! Context building for LLM calls.
+//!
+//! Assembles the message sequence and action definitions from thread state,
+//! active leases, and (Phase 4) project memory docs.
+
+use std::sync::Arc;
+
+use crate::types::capability::{ActionDef, CapabilityLease};
+use crate::types::error::EngineError;
+use crate::types::message::ThreadMessage;
+use crate::traits::effect::EffectExecutor;
+
+/// Build the context for an LLM call: messages and available actions.
+///
+/// Phase 1: passes through thread messages + resolves actions from leases.
+/// Phase 4 will add memory doc retrieval and injection.
+pub async fn build_step_context(
+    messages: &[ThreadMessage],
+    leases: &[CapabilityLease],
+    effects: &Arc<dyn EffectExecutor>,
+) -> Result<(Vec<ThreadMessage>, Vec<ActionDef>), EngineError> {
+    let actions = effects.available_actions(leases).await?;
+    Ok((messages.to_vec(), actions))
+}
diff --git a/crates/ironclaw_engine/src/executor/intent.rs b/crates/ironclaw_engine/src/executor/intent.rs
new file mode 100644
index 00000000..5d65d24e
--- /dev/null
+++ b/crates/ironclaw_engine/src/executor/intent.rs
@@ -0,0 +1,98 @@
+//! Tool intent nudge detection.
+//!
+//! Detects when the LLM expresses intent to use a tool without actually
+//! producing action calls (e.g. "Let me search..." or "I'll fetch...").
+//! Mirrors the logic in `src/agent/agentic_loop.rs` `llm_signals_tool_intent`.
+
+/// Check if a text response signals tool intent without actual action calls.
+///
+/// Returns `true` if the text contains phrases like "Let me search...",
+/// "I'll fetch...", etc. that indicate the LLM wanted to call a tool.
+pub fn signals_tool_intent(response: &str) -> bool {
+    let lower = response.to_lowercase();
+
+    // Skip false positives
+    let false_positive_phrases = [
+        "let me explain",
+        "let me think",
+        "let me know",
+        "let me summarize",
+        "let me clarify",
+    ];
+    for phrase in &false_positive_phrases {
+        if lower.contains(phrase) {
+            return false;
+        }
+    }
+
+    let intent_prefixes = ["let me ", "i'll ", "i will ", "i'm going to "];
+    let action_verbs = [
+        "search", "look up", "check", "fetch", "find", "query", "read", "run", "execute", "call",
+        "use", "invoke",
+    ];
+
+    for prefix in &intent_prefixes {
+        if let Some(after) = lower.strip_prefix(prefix) {
+            for verb in &action_verbs {
+                if after.starts_with(verb) {
+                    return true;
+                }
+            }
+        }
+        // Also check if the prefix appears mid-sentence (after period or newline)
+        for sep in [". ", ".\n", "\n"] {
+            for part in lower.split(sep) {
+                let trimmed = part.trim();
+                if let Some(after) = trimmed.strip_prefix(prefix) {
+                    for verb in &action_verbs {
+                        if after.starts_with(verb) {
+                            return true;
+                        }
+                    }
+                }
+            }
+        }
+    }
+
+    false
+}
+
+/// The nudge message injected into context when tool intent is detected.
+pub const TOOL_INTENT_NUDGE: &str =
+    "You expressed intent to use a tool but didn't make an action call. \
+     Please go ahead and call the appropriate action.";
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+
+    #[test]
+    fn detects_let_me_search() {
+        assert!(signals_tool_intent("Let me search for that"));
+    }
+
+    #[test]
+    fn detects_ill_fetch() {
+        assert!(signals_tool_intent("I'll fetch the latest data"));
+    }
+
+    #[test]
+    fn ignores_let_me_explain() {
+        assert!(!signals_tool_intent("Let me explain how this works"));
+    }
+
+    #[test]
+    fn ignores_let_me_know() {
+        assert!(!signals_tool_intent("Let me know if you need more"));
+    }
+
+    #[test]
+    fn ignores_plain_text() {
+        assert!(!signals_tool_intent("The answer is 42."));
+    }
+
+    #[test]
+    fn detects_after_period() {
+        assert!(signals_tool_intent("Sure. Let me search for that."));
+    }
+}
diff --git a/crates/ironclaw_engine/src/executor/loop_engine.rs b/crates/ironclaw_engine/src/executor/loop_engine.rs
new file mode 100644
index 00000000..47131793
--- /dev/null
+++ b/crates/ironclaw_engine/src/executor/loop_engine.rs
@@ -0,0 +1,629 @@
+//! Core execution loop — the replacement for `run_agentic_loop()`.
+//!
+//! The `ExecutionLoop` owns a thread and drives it through LLM call →
+//! action execution → result processing → repeat cycles. Unlike the
+//! existing delegate pattern, the loop is self-contained: all behavior
+//! differences between thread types are handled via capability leases
+//! and policy, not delegate implementations.
+
+use std::sync::Arc;
+
+use tracing::{debug, warn};
+
+use crate::capability::lease::LeaseManager;
+use crate::capability::policy::PolicyEngine;
+use crate::executor::context::build_step_context;
+use crate::executor::intent;
+use crate::executor::structured::execute_action_calls;
+use crate::runtime::messaging::{SignalReceiver, ThreadOutcome, ThreadSignal};
+use crate::traits::effect::{EffectExecutor, ThreadExecutionContext};
+use crate::traits::llm::{LlmBackend, LlmCallConfig};
+use crate::types::error::EngineError;
+use crate::types::event::EventKind;
+use crate::types::message::ThreadMessage;
+use crate::types::step::{LlmResponse, Step, StepStatus};
+use crate::types::thread::{Thread, ThreadState};
+
+/// The core execution loop for a thread.
+pub struct ExecutionLoop {
+    pub thread: Thread,
+    llm: Arc<dyn LlmBackend>,
+    effects: Arc<dyn EffectExecutor>,
+    leases: Arc<LeaseManager>,
+    policy: Arc<PolicyEngine>,
+    signal_rx: SignalReceiver,
+    user_id: String,
+}
+
+impl ExecutionLoop {
+    pub fn new(
+        thread: Thread,
+        llm: Arc<dyn LlmBackend>,
+        effects: Arc<dyn EffectExecutor>,
+        leases: Arc<LeaseManager>,
+        policy: Arc<PolicyEngine>,
+        signal_rx: SignalReceiver,
+        user_id: String,
+    ) -> Self {
+        Self {
+            thread,
+            llm,
+            effects,
+            leases,
+            policy,
+            signal_rx,
+            user_id,
+        }
+    }
+
+    /// Run the execution loop to completion.
+    pub async fn run(&mut self) -> Result<ThreadOutcome, EngineError> {
+        // Transition to Running
+        self.thread.transition_to(ThreadState::Running, None)?;
+
+        let max_iterations = self.thread.config.max_iterations;
+        let max_nudges = self.thread.config.max_tool_intent_nudges;
+        let nudge_enabled = self.thread.config.enable_tool_intent_nudge;
+        let mut nudge_count: u32 = 0;
+
+        for iteration in 0..max_iterations {
+            // 1. Check signals
+            match self.check_signals() {
+                SignalAction::Continue => {}
+                SignalAction::Stop => {
+                    self.thread
+                        .transition_to(ThreadState::Completed, Some("stopped by signal".into()))?;
+                    return Ok(ThreadOutcome::Stopped);
+                }
+                SignalAction::Inject(msg) => {
+                    self.thread.add_message(msg);
+                }
+            }
+
+            // 2. Get active leases
+            let active_leases = self.leases.active_for_thread(self.thread.id).await;
+
+            // 3. Build context
+            let (messages, actions) =
+                build_step_context(&self.thread.messages, &active_leases, &self.effects).await?;
+
+            // 4. Create step
+            let mut step = Step::new(self.thread.id, iteration + 1);
+            step.status = StepStatus::LlmCalling;
+            self.thread.add_event(EventKind::StepStarted {
+                step_id: step.id,
+            });
+
+            // 5. Call LLM
+            let force_text = iteration >= max_iterations.saturating_sub(1);
+            let config = LlmCallConfig {
+                force_text,
+                ..LlmCallConfig::default()
+            };
+
+            let llm_output = self.llm.complete(&messages, &actions, &config).await?;
+            step.tokens_used = llm_output.usage;
+            self.thread.total_tokens_used += llm_output.usage.total();
+            step.llm_response = Some(llm_output.response.clone());
+
+            // 6. Handle response
+            match llm_output.response {
+                LlmResponse::Text(text) => {
+                    // Check for tool intent nudge
+                    if nudge_enabled
+                        && nudge_count < max_nudges
+                        && intent::signals_tool_intent(&text)
+                    {
+                        nudge_count += 1;
+                        debug!(
+                            thread_id = %self.thread.id,
+                            nudge_count,
+                            "tool intent detected, injecting nudge"
+                        );
+                        self.thread
+                            .add_message(ThreadMessage::assistant(text));
+                        self.thread
+                            .add_message(ThreadMessage::system(intent::TOOL_INTENT_NUDGE));
+
+                        step.status = StepStatus::Completed;
+                        step.completed_at = Some(chrono::Utc::now());
+                        self.thread.add_event(EventKind::StepCompleted {
+                            step_id: step.id,
+                            tokens: step.tokens_used,
+                        });
+                        self.thread.step_count += 1;
+                        continue;
+                    }
+
+                    // Final text response
+                    self.thread
+                        .add_message(ThreadMessage::assistant(text.clone()));
+
+                    step.status = StepStatus::Completed;
+                    step.completed_at = Some(chrono::Utc::now());
+                    self.thread.add_event(EventKind::StepCompleted {
+                        step_id: step.id,
+                        tokens: step.tokens_used,
+                    });
+                    self.thread.step_count += 1;
+
+                    self.thread.transition_to(
+                        ThreadState::Completed,
+                        Some("text response".into()),
+                    )?;
+                    return Ok(ThreadOutcome::Completed {
+                        response: Some(text),
+                    });
+                }
+
+                LlmResponse::ActionCalls { calls, content } => {
+                    nudge_count = 0;
+
+                    // Record assistant message with action calls
+                    self.thread
+                        .add_message(ThreadMessage::assistant_with_actions(content, calls.clone()));
+
+                    step.status = StepStatus::Executing;
+
+                    // Build execution context
+                    let exec_ctx = ThreadExecutionContext {
+                        thread_id: self.thread.id,
+                        thread_type: self.thread.thread_type,
+                        project_id: self.thread.project_id,
+                        user_id: self.user_id.clone(),
+                        step_id: step.id,
+                    };
+
+                    // Execute actions
+                    let batch = execute_action_calls(
+                        &calls,
+                        &self.thread,
+                        &self.effects,
+                        &self.leases,
+                        &self.policy,
+                        &exec_ctx,
+                        &[], // capability-level policies (TODO: resolve from registry)
+                    )
+                    .await?;
+
+                    // Record events
+                    for event_kind in batch.events {
+                        self.thread.add_event(event_kind);
+                    }
+
+                    // Add action results as messages
+                    for result in &batch.results {
+                        self.thread.add_message(ThreadMessage::action_result(
+                            &result.call_id,
+                            &result.action_name,
+                            serde_json::to_string(&result.output).unwrap_or_default(),
+                        ));
+                    }
+
+                    step.action_results = batch.results;
+                    step.status = StepStatus::Completed;
+                    step.completed_at = Some(chrono::Utc::now());
+                    self.thread.add_event(EventKind::StepCompleted {
+                        step_id: step.id,
+                        tokens: step.tokens_used,
+                    });
+                    self.thread.step_count += 1;
+
+                    // Check if approval is needed
+                    if let Some(outcome) = batch.need_approval {
+                        self.thread
+                            .transition_to(ThreadState::Waiting, Some("awaiting approval".into()))?;
+                        return Ok(outcome);
+                    }
+                }
+            }
+        }
+
+        // Max iterations reached
+        warn!(
+            thread_id = %self.thread.id,
+            max_iterations,
+            "max iterations reached"
+        );
+        self.thread.transition_to(
+            ThreadState::Completed,
+            Some("max iterations reached".into()),
+        )?;
+        Ok(ThreadOutcome::MaxIterations)
+    }
+
+    /// Check for pending signals without blocking.
+    fn check_signals(&mut self) -> SignalAction {
+        match self.signal_rx.try_recv() {
+            Ok(ThreadSignal::Stop) => SignalAction::Stop,
+            Ok(ThreadSignal::InjectMessage(msg)) => SignalAction::Inject(msg),
+            Ok(ThreadSignal::Suspend) => {
+                // For now, treat suspend as stop. Phase 3 adds proper suspend/resume.
+                SignalAction::Stop
+            }
+            Ok(ThreadSignal::Resume) | Ok(ThreadSignal::ChildCompleted { .. }) => {
+                SignalAction::Continue
+            }
+            Err(tokio::sync::mpsc::error::TryRecvError::Empty) => SignalAction::Continue,
+            Err(tokio::sync::mpsc::error::TryRecvError::Disconnected) => {
+                // Channel closed — the manager dropped our sender. Treat as stop.
+                SignalAction::Stop
+            }
+        }
+    }
+}
+
+enum SignalAction {
+    Continue,
+    Stop,
+    Inject(ThreadMessage),
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::types::capability::{ActionDef, CapabilityLease, EffectType};
+    use crate::types::project::ProjectId;
+    use crate::types::step::{ActionResult, TokenUsage};
+    use crate::types::thread::{ThreadConfig, ThreadType};
+    use crate::traits::llm::{LlmCallConfig, LlmOutput};
+
+    use std::sync::Mutex;
+    use std::time::Duration;
+
+    // ── Mock LLM ────────────────────────────────────────────
+
+    struct MockLlm {
+        responses: Mutex<Vec<LlmOutput>>,
+    }
+
+    impl MockLlm {
+        fn new(responses: Vec<LlmOutput>) -> Self {
+            Self {
+                responses: Mutex::new(responses),
+            }
+        }
+    }
+
+    #[async_trait::async_trait]
+    impl LlmBackend for MockLlm {
+        async fn complete(
+            &self,
+            _messages: &[ThreadMessage],
+            _actions: &[ActionDef],
+            _config: &LlmCallConfig,
+        ) -> Result<LlmOutput, EngineError> {
+            let mut responses = self.responses.lock().unwrap();
+            if responses.is_empty() {
+                Ok(LlmOutput {
+                    response: LlmResponse::Text("(no more responses)".into()),
+                    usage: TokenUsage::default(),
+                })
+            } else {
+                Ok(responses.remove(0))
+            }
+        }
+
+        fn model_name(&self) -> &str {
+            "mock"
+        }
+    }
+
+    // ── Mock EffectExecutor ─────────────────────────────────
+
+    struct MockEffects {
+        results: Mutex<Vec<Result<ActionResult, EngineError>>>,
+        actions: Vec<ActionDef>,
+    }
+
+    impl MockEffects {
+        fn new(actions: Vec<ActionDef>, results: Vec<Result<ActionResult, EngineError>>) -> Self {
+            Self {
+                results: Mutex::new(results),
+                actions,
+            }
+        }
+    }
+
+    #[async_trait::async_trait]
+    impl EffectExecutor for MockEffects {
+        async fn execute_action(
+            &self,
+            _action_name: &str,
+            _parameters: serde_json::Value,
+            _lease: &CapabilityLease,
+            _context: &ThreadExecutionContext,
+        ) -> Result<ActionResult, EngineError> {
+            let mut results = self.results.lock().unwrap();
+            if results.is_empty() {
+                Ok(ActionResult {
+                    call_id: String::new(),
+                    action_name: String::new(),
+                    output: serde_json::json!({"result": "ok"}),
+                    is_error: false,
+                    duration: Duration::from_millis(1),
+                })
+            } else {
+                results.remove(0)
+            }
+        }
+
+        async fn available_actions(
+            &self,
+            _leases: &[CapabilityLease],
+        ) -> Result<Vec<ActionDef>, EngineError> {
+            Ok(self.actions.clone())
+        }
+    }
+
+    // ── Helpers ─────────────────────────────────────────────
+
+    fn text_response(text: &str) -> LlmOutput {
+        LlmOutput {
+            response: LlmResponse::Text(text.into()),
+            usage: TokenUsage {
+                input_tokens: 100,
+                output_tokens: 50,
+                ..Default::default()
+            },
+        }
+    }
+
+    fn action_response(action_name: &str, call_id: &str) -> LlmOutput {
+        LlmOutput {
+            response: LlmResponse::ActionCalls {
+                calls: vec![crate::types::step::ActionCall {
+                    id: call_id.into(),
+                    action_name: action_name.into(),
+                    parameters: serde_json::json!({}),
+                }],
+                content: None,
+            },
+            usage: TokenUsage {
+                input_tokens: 100,
+                output_tokens: 50,
+                ..Default::default()
+            },
+        }
+    }
+
+    fn test_action() -> ActionDef {
+        ActionDef {
+            name: "test_tool".into(),
+            description: "A test tool".into(),
+            parameters_schema: serde_json::json!({"type": "object"}),
+            effects: vec![EffectType::ReadLocal],
+            requires_approval: false,
+        }
+    }
+
+    async fn make_loop(
+        llm_responses: Vec<LlmOutput>,
+        effect_results: Vec<Result<ActionResult, EngineError>>,
+        config: ThreadConfig,
+    ) -> (ExecutionLoop, crate::runtime::messaging::SignalSender) {
+        let project_id = ProjectId::new();
+        let thread = Thread::new("test goal", ThreadType::Foreground, project_id, config);
+        let tid = thread.id;
+
+        let llm = Arc::new(MockLlm::new(llm_responses));
+        let effects = Arc::new(MockEffects::new(vec![test_action()], effect_results));
+        let leases = Arc::new(LeaseManager::new());
+        let policy = Arc::new(PolicyEngine::new());
+
+        // Grant a default lease
+        leases
+            .grant(tid, "test_cap", vec![], None, None)
+            .await;
+
+        let (tx, rx) = crate::runtime::messaging::signal_channel(16);
+
+        let exec = ExecutionLoop::new(
+            thread,
+            llm,
+            effects,
+            leases,
+            policy,
+            rx,
+            "test-user".into(),
+        );
+        (exec, tx)
+    }
+
+    // ── Tests ───────────────────────────────────────────────
+
+    #[tokio::test]
+    async fn text_response_completes() {
+        let (mut exec, _tx) = make_loop(
+            vec![text_response("Hello!")],
+            vec![],
+            ThreadConfig::default(),
+        )
+        .await;
+
+        let outcome = exec.run().await.unwrap();
+        assert!(matches!(outcome, ThreadOutcome::Completed { response: Some(r) } if r == "Hello!"));
+        assert!(exec.thread.state.is_terminal() || exec.thread.state == ThreadState::Completed);
+        assert_eq!(exec.thread.step_count, 1);
+        assert!(exec.thread.total_tokens_used > 0);
+    }
+
+    #[tokio::test]
+    async fn action_then_text() {
+        let (mut exec, _tx) = make_loop(
+            vec![
+                action_response("test_tool", "call_1"),
+                text_response("Done!"),
+            ],
+            vec![Ok(ActionResult {
+                call_id: "call_1".into(),
+                action_name: "test_tool".into(),
+                output: serde_json::json!({"data": "result"}),
+                is_error: false,
+                duration: Duration::from_millis(5),
+            })],
+            ThreadConfig::default(),
+        )
+        .await;
+
+        let outcome = exec.run().await.unwrap();
+        assert!(matches!(outcome, ThreadOutcome::Completed { response: Some(r) } if r == "Done!"));
+        assert_eq!(exec.thread.step_count, 2);
+        // Should have: system(nudge not counted), assistant+actions, action_result, assistant
+        assert!(exec.thread.messages.len() >= 3);
+    }
+
+    #[tokio::test]
+    async fn max_iterations_reached() {
+        // LLM always returns actions, so it never exits naturally
+        let many_actions: Vec<LlmOutput> = (0..5)
+            .map(|i| action_response("test_tool", &format!("call_{i}")))
+            .collect();
+
+        let many_results: Vec<Result<ActionResult, EngineError>> = (0..5)
+            .map(|i| {
+                Ok(ActionResult {
+                    call_id: format!("call_{i}"),
+                    action_name: "test_tool".into(),
+                    output: serde_json::json!({"i": i}),
+                    is_error: false,
+                    duration: Duration::from_millis(1),
+                })
+            })
+            .collect();
+
+        let config = ThreadConfig {
+            max_iterations: 3,
+            ..ThreadConfig::default()
+        };
+
+        let (mut exec, _tx) = make_loop(many_actions, many_results, config).await;
+
+        let outcome = exec.run().await.unwrap();
+        // The last iteration forces text mode, and MockLlm returns action_response
+        // which gets treated as the 3rd iteration, then on the 3rd iteration force_text
+        // is set. But MockLlm ignores force_text. So we get MaxIterations after 3 iterations.
+        // Actually, max_iterations=3, and force_text is set when iteration >= max-1 = 2,
+        // so iteration 2 (0-indexed) has force_text. The MockLlm still returns action calls,
+        // so we loop 3 times and exit.
+        assert!(matches!(
+            outcome,
+            ThreadOutcome::MaxIterations | ThreadOutcome::Completed { .. }
+        ));
+        assert!(exec.thread.step_count <= 3);
+    }
+
+    #[tokio::test]
+    async fn stop_signal_exits() {
+        // LLM would loop forever, but we send a stop signal
+        let many_actions: Vec<LlmOutput> = (0..100)
+            .map(|i| action_response("test_tool", &format!("call_{i}")))
+            .collect();
+
+        let many_results: Vec<Result<ActionResult, EngineError>> = (0..100)
+            .map(|i| {
+                Ok(ActionResult {
+                    call_id: format!("call_{i}"),
+                    action_name: "test_tool".into(),
+                    output: serde_json::json!({}),
+                    is_error: false,
+                    duration: Duration::from_millis(1),
+                })
+            })
+            .collect();
+
+        let (mut exec, tx) = make_loop(many_actions, many_results, ThreadConfig::default()).await;
+
+        // Send stop before first iteration
+        tx.send(ThreadSignal::Stop).await.unwrap();
+
+        let outcome = exec.run().await.unwrap();
+        assert!(matches!(outcome, ThreadOutcome::Stopped));
+    }
+
+    #[tokio::test]
+    async fn inject_message_appears_in_context() {
+        let (mut exec, tx) = make_loop(
+            vec![text_response("Got your message")],
+            vec![],
+            ThreadConfig::default(),
+        )
+        .await;
+
+        tx.send(ThreadSignal::InjectMessage(ThreadMessage::user(
+            "injected!",
+        )))
+        .await
+        .unwrap();
+
+        let outcome = exec.run().await.unwrap();
+        assert!(matches!(outcome, ThreadOutcome::Completed { .. }));
+        assert!(exec
+            .thread
+            .messages
+            .iter()
+            .any(|m| m.content == "injected!"));
+    }
+
+    #[tokio::test]
+    async fn tool_intent_nudge_injected() {
+        let (mut exec, _tx) = make_loop(
+            vec![
+                text_response("Let me search for that"),
+                text_response("The answer is 42"),
+            ],
+            vec![],
+            ThreadConfig {
+                enable_tool_intent_nudge: true,
+                max_tool_intent_nudges: 2,
+                ..ThreadConfig::default()
+            },
+        )
+        .await;
+
+        let outcome = exec.run().await.unwrap();
+        assert!(
+            matches!(outcome, ThreadOutcome::Completed { response: Some(r) } if r == "The answer is 42")
+        );
+        assert_eq!(exec.thread.step_count, 2);
+        // Should have nudge system message
+        assert!(exec
+            .thread
+            .messages
+            .iter()
+            .any(|m| m.content.contains("didn't make an action call")));
+    }
+
+    #[tokio::test]
+    async fn events_are_recorded() {
+        let (mut exec, _tx) = make_loop(
+            vec![text_response("Hello!")],
+            vec![],
+            ThreadConfig::default(),
+        )
+        .await;
+
+        exec.run().await.unwrap();
+
+        let _event_kinds: Vec<String> = exec
+            .thread
+            .events
+            .iter()
+            .map(|e| format!("{:?}", std::mem::discriminant(&e.kind)))
+            .collect();
+
+        // Should have: StateChanged(Created->Running), StepStarted, MessageAdded,
+        // StepCompleted, StateChanged(Running->Completed)
+        assert!(exec.thread.events.len() >= 4);
+
+        // Verify first event is state change to Running
+        assert!(matches!(
+            &exec.thread.events[0].kind,
+            EventKind::StateChanged {
+                from: ThreadState::Created,
+                to: ThreadState::Running,
+                ..
+            }
+        ));
+    }
+}
diff --git a/crates/ironclaw_engine/src/executor/mod.rs b/crates/ironclaw_engine/src/executor/mod.rs
index a7d7aeeb..10baeced 100644
--- a/crates/ironclaw_engine/src/executor/mod.rs
+++ b/crates/ironclaw_engine/src/executor/mod.rs
@@ -1,5 +1,13 @@
 //! Step execution.
 //!
-//! The core execution loop that replaces `run_agentic_loop()`, plus
-//! tier-specific executors (structured tool calls, embedded scripting, etc.).
-//! Implemented in Phase 2.
+//! - [`ExecutionLoop`] — core loop replacing `run_agentic_loop()`
+//! - [`structured`] — Tier 0 action execution (structured tool calls)
+//! - [`context`] — context building for LLM calls
+//! - [`intent`] — tool intent nudge detection
+
+pub mod context;
+pub mod intent;
+pub mod loop_engine;
+pub mod structured;
+
+pub use loop_engine::ExecutionLoop;
diff --git a/crates/ironclaw_engine/src/executor/structured.rs b/crates/ironclaw_engine/src/executor/structured.rs
new file mode 100644
index 00000000..1660dca0
--- /dev/null
+++ b/crates/ironclaw_engine/src/executor/structured.rs
@@ -0,0 +1,162 @@
+//! Tier 0 executor: structured tool calls.
+//!
+//! Executes action calls by delegating to the `EffectExecutor` trait,
+//! checking leases and policies for each call.
+
+use std::sync::Arc;
+
+use crate::capability::lease::LeaseManager;
+use crate::capability::policy::{PolicyDecision, PolicyEngine};
+use crate::runtime::messaging::ThreadOutcome;
+use crate::traits::effect::{EffectExecutor, ThreadExecutionContext};
+use crate::types::error::EngineError;
+use crate::types::event::EventKind;
+use crate::types::step::{ActionCall, ActionResult};
+use crate::types::thread::Thread;
+
+/// Result of executing a batch of action calls.
+pub struct ActionBatchResult {
+    /// Results for each action call (in order).
+    pub results: Vec<ActionResult>,
+    /// Events generated during execution.
+    pub events: Vec<EventKind>,
+    /// If set, execution was interrupted and the thread needs approval.
+    pub need_approval: Option<ThreadOutcome>,
+}
+
+/// Execute a batch of action calls using the Tier 0 (structured) approach.
+///
+/// For each action call:
+/// 1. Find the lease that grants this action
+/// 2. Check policy (deny/allow/approve)
+/// 3. Consume a lease use
+/// 4. Call `EffectExecutor::execute_action()`
+/// 5. Record result and emit event
+///
+/// Stops at the first action that requires approval.
+pub async fn execute_action_calls(
+    calls: &[ActionCall],
+    thread: &Thread,
+    effects: &Arc<dyn EffectExecutor>,
+    leases: &LeaseManager,
+    policy: &PolicyEngine,
+    context: &ThreadExecutionContext,
+    capability_policies: &[crate::types::capability::PolicyRule],
+) -> Result<ActionBatchResult, EngineError> {
+    let mut results = Vec::with_capacity(calls.len());
+    let mut events = Vec::new();
+
+    for call in calls {
+        // 1. Find the lease for this action
+        let lease = match leases.find_lease_for_action(thread.id, &call.action_name).await {
+            Some(l) => l,
+            None => {
+                let error_result = ActionResult {
+                    call_id: call.id.clone(),
+                    action_name: call.action_name.clone(),
+                    output: serde_json::json!({"error": format!(
+                        "no active lease covers action '{}'", call.action_name
+                    )}),
+                    is_error: true,
+                    duration: std::time::Duration::ZERO,
+                };
+                events.push(EventKind::ActionFailed {
+                    step_id: context.step_id,
+                    action_name: call.action_name.clone(),
+                    call_id: call.id.clone(),
+                    error: format!("no lease for action '{}'", call.action_name),
+                });
+                results.push(error_result);
+                continue;
+            }
+        };
+
+        // 2. Find the action definition and check policy
+        let action_def = effects
+            .available_actions(std::slice::from_ref(&lease))
+            .await?
+            .into_iter()
+            .find(|a| a.name == call.action_name);
+
+        if let Some(ref action_def) = action_def {
+            let decision = policy.evaluate(action_def, &lease, capability_policies);
+            match decision {
+                PolicyDecision::Deny { reason } => {
+                    let error_result = ActionResult {
+                        call_id: call.id.clone(),
+                        action_name: call.action_name.clone(),
+                        output: serde_json::json!({"error": format!("denied: {reason}")}),
+                        is_error: true,
+                        duration: std::time::Duration::ZERO,
+                    };
+                    events.push(EventKind::ActionFailed {
+                        step_id: context.step_id,
+                        action_name: call.action_name.clone(),
+                        call_id: call.id.clone(),
+                        error: reason,
+                    });
+                    results.push(error_result);
+                    continue;
+                }
+                PolicyDecision::RequireApproval { .. } => {
+                    events.push(EventKind::ApprovalRequested {
+                        action_name: call.action_name.clone(),
+                        call_id: call.id.clone(),
+                    });
+                    return Ok(ActionBatchResult {
+                        results,
+                        events,
+                        need_approval: Some(ThreadOutcome::NeedApproval {
+                            action_name: call.action_name.clone(),
+                            call_id: call.id.clone(),
+                            parameters: call.parameters.clone(),
+                        }),
+                    });
+                }
+                PolicyDecision::Allow => {}
+            }
+        }
+
+        // 3. Consume a lease use
+        leases.consume_use(lease.id).await?;
+
+        // 4. Execute the action
+        let result = effects
+            .execute_action(&call.action_name, call.parameters.clone(), &lease, context)
+            .await;
+
+        match result {
+            Ok(action_result) => {
+                events.push(EventKind::ActionExecuted {
+                    step_id: context.step_id,
+                    action_name: call.action_name.clone(),
+                    call_id: call.id.clone(),
+                    duration_ms: action_result.duration.as_millis() as u64,
+                });
+                results.push(action_result);
+            }
+            Err(e) => {
+                let error_result = ActionResult {
+                    call_id: call.id.clone(),
+                    action_name: call.action_name.clone(),
+                    output: serde_json::json!({"error": e.to_string()}),
+                    is_error: true,
+                    duration: std::time::Duration::ZERO,
+                };
+                events.push(EventKind::ActionFailed {
+                    step_id: context.step_id,
+                    action_name: call.action_name.clone(),
+                    call_id: call.id.clone(),
+                    error: e.to_string(),
+                });
+                results.push(error_result);
+            }
+        }
+    }
+
+    Ok(ActionBatchResult {
+        results,
+        events,
+        need_approval: None,
+    })
+}
diff --git a/crates/ironclaw_engine/src/lib.rs b/crates/ironclaw_engine/src/lib.rs
index 4709695a..8fee3666 100644
--- a/crates/ironclaw_engine/src/lib.rs
+++ b/crates/ironclaw_engine/src/lib.rs
@@ -44,3 +44,24 @@ pub use types::thread::{Thread, ThreadConfig, ThreadId, ThreadState, ThreadType}
 pub use traits::effect::{EffectExecutor, ThreadExecutionContext};
 pub use traits::llm::{LlmBackend, LlmCallConfig, LlmOutput};
 pub use traits::store::Store;
+
+// ── Re-exports: capability ────────────────────────────────────
+
+pub use capability::registry::CapabilityRegistry;
+pub use capability::lease::LeaseManager;
+pub use capability::policy::{PolicyDecision, PolicyEngine};
+
+// ── Re-exports: runtime ───────────────────────────────────────
+
+pub use runtime::manager::ThreadManager;
+pub use runtime::messaging::ThreadOutcome;
+pub use runtime::tree::ThreadTree;
+
+// ── Re-exports: executor ──────────────────────────────────────
+
+pub use executor::ExecutionLoop;
+
+// ── Re-exports: memory ────────────────────────────────────────
+
+pub use memory::MemoryStore;
+pub use memory::RetrievalEngine;
diff --git a/crates/ironclaw_engine/src/memory/mod.rs b/crates/ironclaw_engine/src/memory/mod.rs
index 455f3658..560efaf8 100644
--- a/crates/ironclaw_engine/src/memory/mod.rs
+++ b/crates/ironclaw_engine/src/memory/mod.rs
@@ -1,5 +1,10 @@
 //! Memory document system.
 //!
-//! Project-scoped document storage and retrieval engine for building
-//! thread context from durable knowledge.
-//! Implemented in Phase 2 (store) and Phase 4 (retrieval).
+//! - [`MemoryStore`] — project-scoped document CRUD
+//! - [`RetrievalEngine`] — context building from project docs (Phase 4)
+
+pub mod retrieval;
+pub mod store;
+
+pub use retrieval::RetrievalEngine;
+pub use store::MemoryStore;
diff --git a/crates/ironclaw_engine/src/memory/retrieval.rs b/crates/ironclaw_engine/src/memory/retrieval.rs
new file mode 100644
index 00000000..b4faa5df
--- /dev/null
+++ b/crates/ironclaw_engine/src/memory/retrieval.rs
@@ -0,0 +1,35 @@
+//! Context retrieval engine.
+//!
+//! Builds context for thread steps by retrieving relevant memory docs
+//! from the project. Phase 1: stub. Phase 4 implements keyword + semantic search.
+
+use crate::types::error::EngineError;
+use crate::types::memory::MemoryDoc;
+use crate::types::project::ProjectId;
+
+/// Retrieves relevant memory docs for a thread's context.
+pub struct RetrievalEngine;
+
+impl RetrievalEngine {
+    pub fn new() -> Self {
+        Self
+    }
+
+    /// Retrieve relevant memory docs for the given query.
+    ///
+    /// Phase 1: returns empty vec. Phase 4 implements search.
+    pub async fn retrieve_context(
+        &self,
+        _project_id: ProjectId,
+        _query: &str,
+        _max_docs: usize,
+    ) -> Result<Vec<MemoryDoc>, EngineError> {
+        Ok(Vec::new())
+    }
+}
+
+impl Default for RetrievalEngine {
+    fn default() -> Self {
+        Self::new()
+    }
+}
diff --git a/crates/ironclaw_engine/src/memory/store.rs b/crates/ironclaw_engine/src/memory/store.rs
new file mode 100644
index 00000000..484e00df
--- /dev/null
+++ b/crates/ironclaw_engine/src/memory/store.rs
@@ -0,0 +1,66 @@
+//! Project-scoped memory document operations.
+
+use std::sync::Arc;
+
+use crate::traits::store::Store;
+use crate::types::error::EngineError;
+use crate::types::memory::{DocId, DocType, MemoryDoc};
+use crate::types::project::ProjectId;
+use crate::types::thread::ThreadId;
+
+/// Thin wrapper over the [`Store`] trait for project-scoped doc operations.
+pub struct MemoryStore {
+    store: Arc<dyn Store>,
+}
+
+impl MemoryStore {
+    pub fn new(store: Arc<dyn Store>) -> Self {
+        Self { store }
+    }
+
+    /// Create a new memory document.
+    pub async fn create_doc(
+        &self,
+        project_id: ProjectId,
+        doc_type: DocType,
+        title: &str,
+        content: &str,
+    ) -> Result<MemoryDoc, EngineError> {
+        let doc = MemoryDoc::new(project_id, doc_type, title, content);
+        self.store.save_memory_doc(&doc).await?;
+        Ok(doc)
+    }
+
+    /// Create a doc linked to a source thread.
+    pub async fn create_doc_from_thread(
+        &self,
+        project_id: ProjectId,
+        doc_type: DocType,
+        title: &str,
+        content: &str,
+        source_thread_id: ThreadId,
+    ) -> Result<MemoryDoc, EngineError> {
+        let doc = MemoryDoc::new(project_id, doc_type, title, content)
+            .with_source_thread(source_thread_id);
+        self.store.save_memory_doc(&doc).await?;
+        Ok(doc)
+    }
+
+    /// Load a single doc by ID.
+    pub async fn get_doc(&self, id: DocId) -> Result<Option<MemoryDoc>, EngineError> {
+        self.store.load_memory_doc(id).await
+    }
+
+    /// List all docs in a project, optionally filtered by type.
+    pub async fn list_docs(
+        &self,
+        project_id: ProjectId,
+        doc_type: Option<DocType>,
+    ) -> Result<Vec<MemoryDoc>, EngineError> {
+        let all = self.store.list_memory_docs(project_id).await?;
+        match doc_type {
+            Some(dt) => Ok(all.into_iter().filter(|d| d.doc_type == dt).collect()),
+            None => Ok(all),
+        }
+    }
+}
diff --git a/crates/ironclaw_engine/src/runtime/manager.rs b/crates/ironclaw_engine/src/runtime/manager.rs
new file mode 100644
index 00000000..b84d218a
--- /dev/null
+++ b/crates/ironclaw_engine/src/runtime/manager.rs
@@ -0,0 +1,422 @@
+//! Thread manager — top-level orchestrator for thread lifecycle.
+
+use std::collections::HashMap;
+use std::sync::Arc;
+
+use tokio::sync::RwLock;
+use tracing::{debug, error};
+
+use crate::capability::lease::LeaseManager;
+use crate::capability::policy::PolicyEngine;
+use crate::capability::registry::CapabilityRegistry;
+use crate::executor::ExecutionLoop;
+use crate::runtime::messaging::{self, SignalSender, ThreadOutcome, ThreadSignal};
+use crate::runtime::tree::ThreadTree;
+use crate::traits::effect::EffectExecutor;
+use crate::traits::llm::LlmBackend;
+use crate::traits::store::Store;
+use crate::types::error::EngineError;
+use crate::types::message::ThreadMessage;
+use crate::types::project::ProjectId;
+use crate::types::thread::{Thread, ThreadConfig, ThreadId, ThreadType};
+
+/// Handle to a running thread for checking results.
+struct RunningThread {
+    signal_tx: SignalSender,
+    handle: tokio::task::JoinHandle<Result<ThreadOutcome, EngineError>>,
+}
+
+/// Top-level orchestrator for thread lifecycle.
+///
+/// Manages thread spawning, supervision, signaling, and tree relationships.
+pub struct ThreadManager {
+    llm: Arc<dyn LlmBackend>,
+    effects: Arc<dyn EffectExecutor>,
+    store: Arc<dyn Store>,
+    pub capabilities: Arc<CapabilityRegistry>,
+    pub leases: Arc<LeaseManager>,
+    pub policy: Arc<PolicyEngine>,
+    tree: RwLock<ThreadTree>,
+    running: RwLock<HashMap<ThreadId, RunningThread>>,
+}
+
+impl ThreadManager {
+    pub fn new(
+        llm: Arc<dyn LlmBackend>,
+        effects: Arc<dyn EffectExecutor>,
+        store: Arc<dyn Store>,
+        capabilities: Arc<CapabilityRegistry>,
+        leases: Arc<LeaseManager>,
+        policy: Arc<PolicyEngine>,
+    ) -> Self {
+        Self {
+            llm,
+            effects,
+            store,
+            capabilities,
+            leases,
+            policy,
+            tree: RwLock::new(ThreadTree::new()),
+            running: RwLock::new(HashMap::new()),
+        }
+    }
+
+    /// Spawn a new thread and start executing it.
+    ///
+    /// Grants default capability leases for all registered capabilities.
+    /// Returns the thread ID immediately; the thread runs in a background task.
+    pub async fn spawn_thread(
+        &self,
+        goal: impl Into<String>,
+        thread_type: ThreadType,
+        project_id: ProjectId,
+        config: ThreadConfig,
+        parent_id: Option<ThreadId>,
+        user_id: impl Into<String>,
+    ) -> Result<ThreadId, EngineError> {
+        let mut thread = Thread::new(goal, thread_type, project_id, config);
+        if let Some(pid) = parent_id {
+            thread = thread.with_parent(pid);
+        }
+        let thread_id = thread.id;
+        let user_id = user_id.into();
+
+        // Register in tree
+        if let Some(pid) = parent_id {
+            self.tree.write().await.add_child(pid, thread_id);
+        }
+
+        // Grant leases for all registered capabilities
+        for cap in self.capabilities.list() {
+            let lease = self
+                .leases
+                .grant(thread_id, &cap.name, vec![], None, None)
+                .await;
+            thread.capability_leases.push(lease.id);
+        }
+
+        // Persist
+        self.store.save_thread(&thread).await?;
+
+        // Create signal channel
+        let (tx, rx) = messaging::signal_channel(32);
+
+        // Build execution loop
+        let llm = Arc::clone(&self.llm);
+        let effects = Arc::clone(&self.effects);
+        let leases = Arc::clone(&self.leases);
+        let policy = Arc::clone(&self.policy);
+
+        let exec_loop = ExecutionLoop::new(thread, llm, effects, leases, policy, rx, user_id);
+
+        // Spawn background task
+        let handle = tokio::spawn(async move {
+            let mut exec = exec_loop;
+            let result = exec.run().await;
+            debug!(thread_id = %thread_id, "thread execution finished");
+            result
+        });
+
+        self.running.write().await.insert(
+            thread_id,
+            RunningThread {
+                signal_tx: tx,
+                handle,
+            },
+        );
+
+        Ok(thread_id)
+    }
+
+    /// Send a stop signal to a running thread.
+    pub async fn stop_thread(&self, thread_id: ThreadId) -> Result<(), EngineError> {
+        let running = self.running.read().await;
+        if let Some(rt) = running.get(&thread_id) {
+            let _ = rt.signal_tx.send(ThreadSignal::Stop).await;
+            Ok(())
+        } else {
+            Err(EngineError::ThreadNotFound(thread_id))
+        }
+    }
+
+    /// Inject a user message into a running thread.
+    pub async fn inject_message(
+        &self,
+        thread_id: ThreadId,
+        message: ThreadMessage,
+    ) -> Result<(), EngineError> {
+        let running = self.running.read().await;
+        if let Some(rt) = running.get(&thread_id) {
+            let _ = rt
+                .signal_tx
+                .send(ThreadSignal::InjectMessage(message))
+                .await;
+            Ok(())
+        } else {
+            Err(EngineError::ThreadNotFound(thread_id))
+        }
+    }
+
+    /// Check if a thread is still running.
+    pub async fn is_running(&self, thread_id: ThreadId) -> bool {
+        let running = self.running.read().await;
+        running
+            .get(&thread_id)
+            .is_some_and(|rt| !rt.handle.is_finished())
+    }
+
+    /// Wait for a thread to finish and return its outcome.
+    /// Removes the thread from the running set.
+    pub async fn join_thread(
+        &self,
+        thread_id: ThreadId,
+    ) -> Result<ThreadOutcome, EngineError> {
+        let rt = {
+            let mut running = self.running.write().await;
+            running.remove(&thread_id)
+        };
+
+        match rt {
+            Some(rt) => match rt.handle.await {
+                Ok(result) => result,
+                Err(e) => {
+                    error!(thread_id = %thread_id, "thread task panicked: {e}");
+                    Ok(ThreadOutcome::Failed {
+                        error: format!("thread task panicked: {e}"),
+                    })
+                }
+            },
+            None => Err(EngineError::ThreadNotFound(thread_id)),
+        }
+    }
+
+    /// Get children of a thread.
+    pub async fn children_of(&self, thread_id: ThreadId) -> Vec<ThreadId> {
+        let tree = self.tree.read().await;
+        tree.children_of(thread_id).to_vec()
+    }
+
+    /// Get the parent of a thread.
+    pub async fn parent_of(&self, thread_id: ThreadId) -> Option<ThreadId> {
+        let tree = self.tree.read().await;
+        tree.parent_of(thread_id)
+    }
+
+    /// Clean up finished threads from the running set.
+    pub async fn cleanup_finished(&self) -> Vec<ThreadId> {
+        let mut running = self.running.write().await;
+        let finished: Vec<ThreadId> = running
+            .iter()
+            .filter(|(_, rt)| rt.handle.is_finished())
+            .map(|(id, _)| *id)
+            .collect();
+        for id in &finished {
+            running.remove(id);
+        }
+        finished
+    }
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+    use crate::types::capability::{ActionDef, Capability, CapabilityLease, EffectType};
+    use crate::types::event::ThreadEvent;
+    use crate::types::memory::{DocId, MemoryDoc};
+    use crate::types::project::Project;
+    use crate::types::step::{ActionResult, LlmResponse, Step, TokenUsage};
+    use crate::types::thread::ThreadState;
+    use crate::traits::llm::{LlmCallConfig, LlmOutput};
+    use std::sync::Mutex;
+    use std::time::Duration;
+
+    // ── Mocks ───────────────────────────────────────────────
+
+    struct MockLlm {
+        responses: Mutex<Vec<LlmOutput>>,
+    }
+
+    impl MockLlm {
+        fn text(msg: &str) -> Arc<Self> {
+            Arc::new(Self {
+                responses: Mutex::new(vec![LlmOutput {
+                    response: LlmResponse::Text(msg.into()),
+                    usage: TokenUsage::default(),
+                }]),
+            })
+        }
+    }
+
+    #[async_trait::async_trait]
+    impl LlmBackend for MockLlm {
+        async fn complete(
+            &self,
+            _: &[crate::types::message::ThreadMessage],
+            _: &[ActionDef],
+            _: &LlmCallConfig,
+        ) -> Result<LlmOutput, EngineError> {
+            let mut r = self.responses.lock().unwrap();
+            if r.is_empty() {
+                Ok(LlmOutput {
+                    response: LlmResponse::Text("done".into()),
+                    usage: TokenUsage::default(),
+                })
+            } else {
+                Ok(r.remove(0))
+            }
+        }
+
+        fn model_name(&self) -> &str {
+            "mock"
+        }
+    }
+
+    struct MockEffects;
+
+    #[async_trait::async_trait]
+    impl EffectExecutor for MockEffects {
+        async fn execute_action(
+            &self,
+            _: &str,
+            _: serde_json::Value,
+            _: &CapabilityLease,
+            _: &crate::traits::effect::ThreadExecutionContext,
+        ) -> Result<ActionResult, EngineError> {
+            Ok(ActionResult {
+                call_id: String::new(),
+                action_name: String::new(),
+                output: serde_json::json!({}),
+                is_error: false,
+                duration: Duration::from_millis(1),
+            })
+        }
+
+        async fn available_actions(
+            &self,
+            _: &[CapabilityLease],
+        ) -> Result<Vec<ActionDef>, EngineError> {
+            Ok(vec![])
+        }
+    }
+
+    struct MockStore;
+
+    #[async_trait::async_trait]
+    impl Store for MockStore {
+        async fn save_thread(&self, _: &Thread) -> Result<(), EngineError> { Ok(()) }
+        async fn load_thread(&self, _: ThreadId) -> Result<Option<Thread>, EngineError> { Ok(None) }
+        async fn list_threads(&self, _: ProjectId) -> Result<Vec<Thread>, EngineError> { Ok(vec![]) }
+        async fn update_thread_state(&self, _: ThreadId, _: ThreadState) -> Result<(), EngineError> { Ok(()) }
+        async fn save_step(&self, _: &Step) -> Result<(), EngineError> { Ok(()) }
+        async fn load_steps(&self, _: ThreadId) -> Result<Vec<Step>, EngineError> { Ok(vec![]) }
+        async fn append_events(&self, _: &[ThreadEvent]) -> Result<(), EngineError> { Ok(()) }
+        async fn load_events(&self, _: ThreadId) -> Result<Vec<ThreadEvent>, EngineError> { Ok(vec![]) }
+        async fn save_project(&self, _: &Project) -> Result<(), EngineError> { Ok(()) }
+        async fn load_project(&self, _: ProjectId) -> Result<Option<Project>, EngineError> { Ok(None) }
+        async fn save_memory_doc(&self, _: &MemoryDoc) -> Result<(), EngineError> { Ok(()) }
+        async fn load_memory_doc(&self, _: DocId) -> Result<Option<MemoryDoc>, EngineError> { Ok(None) }
+        async fn list_memory_docs(&self, _: ProjectId) -> Result<Vec<MemoryDoc>, EngineError> { Ok(vec![]) }
+        async fn save_lease(&self, _: &CapabilityLease) -> Result<(), EngineError> { Ok(()) }
+        async fn load_active_leases(&self, _: ThreadId) -> Result<Vec<CapabilityLease>, EngineError> { Ok(vec![]) }
+        async fn revoke_lease(&self, _: crate::types::capability::LeaseId, _: &str) -> Result<(), EngineError> { Ok(()) }
+    }
+
+    fn make_manager(llm: Arc<dyn LlmBackend>) -> ThreadManager {
+        let mut caps = CapabilityRegistry::new();
+        caps.register(Capability {
+            name: "test".into(),
+            description: "Test capability".into(),
+            actions: vec![ActionDef {
+                name: "test_tool".into(),
+                description: "Test".into(),
+                parameters_schema: serde_json::json!({}),
+                effects: vec![EffectType::ReadLocal],
+                requires_approval: false,
+            }],
+            knowledge: vec![],
+            policies: vec![],
+        });
+
+        ThreadManager::new(
+            llm,
+            Arc::new(MockEffects),
+            Arc::new(MockStore),
+            Arc::new(caps),
+            Arc::new(LeaseManager::new()),
+            Arc::new(PolicyEngine::new()),
+        )
+    }
+
+    // ── Tests ───────────────────────────────────────────────
+
+    #[tokio::test]
+    async fn spawn_and_join() {
+        let mgr = make_manager(MockLlm::text("Hello!"));
+        let project = ProjectId::new();
+
+        let tid = mgr
+            .spawn_thread("test", ThreadType::Foreground, project, ThreadConfig::default(), None, "user")
+            .await
+            .unwrap();
+
+        let outcome = mgr.join_thread(tid).await.unwrap();
+        assert!(matches!(outcome, ThreadOutcome::Completed { response: Some(r) } if r == "Hello!"));
+    }
+
+    #[tokio::test]
+    async fn stop_thread_works() {
+        // LLM that returns many action responses
+        let responses: Vec<LlmOutput> = (0..100)
+            .map(|i| LlmOutput {
+                response: LlmResponse::ActionCalls {
+                    calls: vec![crate::types::step::ActionCall {
+                        id: format!("c{i}"),
+                        action_name: "test_tool".into(),
+                        parameters: serde_json::json!({}),
+                    }],
+                    content: None,
+                },
+                usage: TokenUsage::default(),
+            })
+            .collect();
+
+        let mgr = make_manager(Arc::new(MockLlm {
+            responses: Mutex::new(responses),
+        }));
+        let project = ProjectId::new();
+
+        let tid = mgr
+            .spawn_thread("test", ThreadType::Foreground, project, ThreadConfig::default(), None, "user")
+            .await
+            .unwrap();
+
+        // Give it a moment to start, then stop
+        tokio::time::sleep(Duration::from_millis(10)).await;
+        mgr.stop_thread(tid).await.unwrap();
+
+        let outcome = mgr.join_thread(tid).await.unwrap();
+        assert!(matches!(
+            outcome,
+            ThreadOutcome::Stopped | ThreadOutcome::Completed { .. } | ThreadOutcome::MaxIterations
+        ));
+    }
+
+    #[tokio::test]
+    async fn parent_child_tree() {
+        let mgr = make_manager(MockLlm::text("parent done"));
+        let project = ProjectId::new();
+
+        let parent = mgr
+            .spawn_thread("parent", ThreadType::Foreground, project, ThreadConfig::default(), None, "user")
+            .await
+            .unwrap();
+
+        let child = mgr
+            .spawn_thread("child", ThreadType::Research, project, ThreadConfig::default(), Some(parent), "user")
+            .await
+            .unwrap();
+
+        assert_eq!(mgr.parent_of(child).await, Some(parent));
+        assert_eq!(mgr.children_of(parent).await, vec![child]);
+    }
+}
diff --git a/crates/ironclaw_engine/src/runtime/messaging.rs b/crates/ironclaw_engine/src/runtime/messaging.rs
new file mode 100644
index 00000000..2aea75ba
--- /dev/null
+++ b/crates/ironclaw_engine/src/runtime/messaging.rs
@@ -0,0 +1,53 @@
+//! Thread-to-thread messaging via channels.
+
+use crate::types::message::ThreadMessage;
+use crate::types::thread::ThreadId;
+
+/// Signal sent to a running thread via its mailbox.
+#[derive(Debug)]
+pub enum ThreadSignal {
+    /// Stop the thread gracefully.
+    Stop,
+    /// Pause execution (can be resumed later).
+    Suspend,
+    /// Resume a suspended thread.
+    Resume,
+    /// Inject a user message into the thread's context.
+    InjectMessage(ThreadMessage),
+    /// Notification that a child thread completed.
+    ChildCompleted {
+        child_id: ThreadId,
+        outcome: ThreadOutcome,
+    },
+}
+
+/// Final outcome of a thread's execution.
+#[derive(Debug, Clone)]
+pub enum ThreadOutcome {
+    /// Completed with an optional text response.
+    Completed { response: Option<String> },
+    /// Thread was stopped by a signal.
+    Stopped,
+    /// Max iterations reached without completing.
+    MaxIterations,
+    /// Terminal failure.
+    Failed { error: String },
+    /// A capability action requires user approval before continuing.
+    NeedApproval {
+        action_name: String,
+        call_id: String,
+        parameters: serde_json::Value,
+    },
+}
+
+/// A mailbox for sending signals to a running thread.
+///
+/// Each thread gets a `(sender, receiver)` pair. The `ThreadManager` holds
+/// the sender; the `ExecutionLoop` holds the receiver.
+pub type SignalSender = tokio::sync::mpsc::Sender<ThreadSignal>;
+pub type SignalReceiver = tokio::sync::mpsc::Receiver<ThreadSignal>;
+
+/// Create a new signal channel with the given buffer size.
+pub fn signal_channel(buffer: usize) -> (SignalSender, SignalReceiver) {
+    tokio::sync::mpsc::channel(buffer)
+}
diff --git a/crates/ironclaw_engine/src/runtime/mod.rs b/crates/ironclaw_engine/src/runtime/mod.rs
index 15c23165..82f20454 100644
--- a/crates/ironclaw_engine/src/runtime/mod.rs
+++ b/crates/ironclaw_engine/src/runtime/mod.rs
@@ -1,4 +1,13 @@
 //! Thread lifecycle management.
 //!
-//! ThreadManager, thread tree, and inter-thread messaging.
-//! Implemented in Phase 2.
+//! - [`ThreadManager`] — top-level orchestrator for spawning and supervising threads
+//! - [`ThreadTree`] — parent-child relationship tracking
+//! - [`messaging`] — inter-thread signal channel
+
+pub mod manager;
+pub mod messaging;
+pub mod tree;
+
+pub use manager::ThreadManager;
+pub use messaging::ThreadOutcome;
+pub use tree::ThreadTree;
diff --git a/crates/ironclaw_engine/src/runtime/tree.rs b/crates/ironclaw_engine/src/runtime/tree.rs
new file mode 100644
index 00000000..3a754dea
--- /dev/null
+++ b/crates/ironclaw_engine/src/runtime/tree.rs
@@ -0,0 +1,129 @@
+//! Thread tree — parent-child relationship tracking.
+
+use std::collections::HashMap;
+
+use crate::types::thread::ThreadId;
+
+/// Manages parent-child thread relationships.
+///
+/// Simple in-memory tree. Threads form a forest (multiple roots).
+#[derive(Debug, Default)]
+pub struct ThreadTree {
+    /// child → parent
+    parents: HashMap<ThreadId, ThreadId>,
+    /// parent → children (ordered by insertion)
+    children: HashMap<ThreadId, Vec<ThreadId>>,
+}
+
+impl ThreadTree {
+    pub fn new() -> Self {
+        Self::default()
+    }
+
+    /// Register a parent-child relationship.
+    pub fn add_child(&mut self, parent_id: ThreadId, child_id: ThreadId) {
+        self.parents.insert(child_id, parent_id);
+        self.children.entry(parent_id).or_default().push(child_id);
+    }
+
+    /// Get the parent of a thread, if any.
+    pub fn parent_of(&self, thread_id: ThreadId) -> Option<ThreadId> {
+        self.parents.get(&thread_id).copied()
+    }
+
+    /// Get the children of a thread.
+    pub fn children_of(&self, thread_id: ThreadId) -> &[ThreadId] {
+        self.children
+            .get(&thread_id)
+            .map(Vec::as_slice)
+            .unwrap_or(&[])
+    }
+
+    /// Walk up the tree to collect all ancestors (parent, grandparent, ...).
+    pub fn ancestors(&self, thread_id: ThreadId) -> Vec<ThreadId> {
+        let mut result = Vec::new();
+        let mut current = thread_id;
+        while let Some(parent) = self.parents.get(&current) {
+            result.push(*parent);
+            current = *parent;
+        }
+        result
+    }
+
+    /// Remove a thread from the tree. Does not remove its children.
+    pub fn remove(&mut self, thread_id: ThreadId) {
+        if let Some(parent) = self.parents.remove(&thread_id)
+            && let Some(siblings) = self.children.get_mut(&parent)
+        {
+            siblings.retain(|id| *id != thread_id);
+        }
+        // Orphan any children (their parent_id entries become stale)
+        self.children.remove(&thread_id);
+    }
+
+    /// Check if a thread is a root (no parent).
+    pub fn is_root(&self, thread_id: ThreadId) -> bool {
+        !self.parents.contains_key(&thread_id)
+    }
+}
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+
+    #[test]
+    fn add_and_query() {
+        let mut tree = ThreadTree::new();
+        let parent = ThreadId::new();
+        let child1 = ThreadId::new();
+        let child2 = ThreadId::new();
+
+        tree.add_child(parent, child1);
+        tree.add_child(parent, child2);
+
+        assert_eq!(tree.parent_of(child1), Some(parent));
+        assert_eq!(tree.parent_of(child2), Some(parent));
+        assert_eq!(tree.children_of(parent).len(), 2);
+        assert!(tree.is_root(parent));
+        assert!(!tree.is_root(child1));
+    }
+
+    #[test]
+    fn ancestors_walk_up() {
+        let mut tree = ThreadTree::new();
+        let root = ThreadId::new();
+        let mid = ThreadId::new();
+        let leaf = ThreadId::new();
+
+        tree.add_child(root, mid);
+        tree.add_child(mid, leaf);
+
+        let ancestors = tree.ancestors(leaf);
+        assert_eq!(ancestors, vec![mid, root]);
+    }
+
+    #[test]
+    fn remove_detaches_from_parent() {
+        let mut tree = ThreadTree::new();
+        let parent = ThreadId::new();
+        let child = ThreadId::new();
+
+        tree.add_child(parent, child);
+        tree.remove(child);
+
+        assert_eq!(tree.parent_of(child), None);
+        assert!(tree.children_of(parent).is_empty());
+    }
+
+    #[test]
+    fn children_of_unknown_returns_empty() {
+        let tree = ThreadTree::new();
+        assert!(tree.children_of(ThreadId::new()).is_empty());
+    }
+
+    #[test]
+    fn ancestors_of_root_is_empty() {
+        let tree = ThreadTree::new();
+        assert!(tree.ancestors(ThreadId::new()).is_empty());
+    }
+}