diff --git a/CHANGELOG.md b/CHANGELOG.md
index f83fabf6..872e875d 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -21,7 +21,14 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - **OutputLoggingMiddleware**: Middleware that creates OutputScope spans for outgoing messages with lazy parent span linking via `A365_PARENT_SPAN_KEY`.
 - **ObservabilityHostingManager**: Manager for configuring hosting-layer observability middleware with `ObservabilityHostingOptions`.
 
+### Added
+- **Agent365ExporterOptions**: New `httpRequestTimeoutMilliseconds` option (default 30s) controls the per-HTTP-request timeout for backend calls. This is distinct from `exporterTimeoutMilliseconds` which controls the overall BatchSpanProcessor export deadline.
+
+### Fixed
+- **Agent365ExporterOptions**: `exporterTimeoutMilliseconds` default increased from 30s to 90s to allow sufficient time for retries across multiple identity groups within a single export cycle.
+
 ### Changed
+- **ObservabilityHostingManager**: `enableBaggage` option now defaults to `false` (was `true`). Callers must explicitly set `enableBaggage: true` to register the BaggageMiddleware.
 - `ScopeUtils.deriveAgentDetails` now resolves `agentId` via `activity.getAgenticInstanceId()` for embodied (agentic) agents only. For non-embodied agents, `agentId` is `undefined` since the token's app ID cannot reliably be attributed to the agent.
 - `ScopeUtils.deriveAgentDetails` now resolves `agentBlueprintId` from the JWT `xms_par_app_azp` claim via `RuntimeUtility.getAgentIdFromToken()` instead of reading `recipient.agenticAppBlueprintId`.
 - `ScopeUtils.deriveAgentDetails` now resolves `agentUPN` via `activity.getAgenticUser()` instead of `recipient.agenticUserId`.
diff --git a/packages/agents-a365-observability-hosting/src/middleware/ObservabilityHostingManager.ts b/packages/agents-a365-observability-hosting/src/middleware/ObservabilityHostingManager.ts
index a5f05803..5d9eeb32 100644
--- a/packages/agents-a365-observability-hosting/src/middleware/ObservabilityHostingManager.ts
+++ b/packages/agents-a365-observability-hosting/src/middleware/ObservabilityHostingManager.ts
@@ -10,7 +10,7 @@ import { OutputLoggingMiddleware } from './OutputLoggingMiddleware';
  * Configuration options for the hosting observability layer.
  */
 export interface ObservabilityHostingOptions {
-  /** Enable baggage propagation middleware. Defaults to true. */
+  /** Enable baggage propagation middleware. Defaults to false. */
   enableBaggage?: boolean;
 
   /** Enable output logging middleware for tracing outgoing messages. Defaults to false. */
@@ -42,7 +42,7 @@ export class ObservabilityHostingManager {
       return;
     }
 
-    const enableBaggage = options.enableBaggage !== false;
+    const enableBaggage = options.enableBaggage === true;
     const enableOutputLogging = options.enableOutputLogging === true;
 
     if (enableBaggage) {
diff --git a/packages/agents-a365-observability/src/tracing/exporter/Agent365Exporter.ts b/packages/agents-a365-observability/src/tracing/exporter/Agent365Exporter.ts
index 0839f07b..b5b8df75 100644
--- a/packages/agents-a365-observability/src/tracing/exporter/Agent365Exporter.ts
+++ b/packages/agents-a365-observability/src/tracing/exporter/Agent365Exporter.ts
@@ -24,7 +24,6 @@ import logger, { formatError } from '../../utils/logging';
 import { Agent365ExporterOptions } from './Agent365ExporterOptions';
 import { ExporterEventNames } from './ExporterEventNames';
 
-const DEFAULT_HTTP_TIMEOUT_SECONDS = 30000; // 30 seconds in ms
 const DEFAULT_MAX_RETRIES = 3;
 
 interface OTLPExportRequest {
@@ -247,7 +246,7 @@ export class Agent365Exporter implements SpanExporter {
           method: 'POST',
           headers,
           body,
-          signal: AbortSignal.timeout(DEFAULT_HTTP_TIMEOUT_SECONDS)
+          signal: AbortSignal.timeout(this.options.httpRequestTimeoutMilliseconds)
         });
 
         correlationId = response?.headers?.get('x-ms-correlation-id') || response?.headers?.get('x-correlation-id') || 'unknown';
diff --git a/packages/agents-a365-observability/src/tracing/exporter/Agent365ExporterOptions.ts b/packages/agents-a365-observability/src/tracing/exporter/Agent365ExporterOptions.ts
index 37382bdc..45523e8c 100644
--- a/packages/agents-a365-observability/src/tracing/exporter/Agent365ExporterOptions.ts
+++ b/packages/agents-a365-observability/src/tracing/exporter/Agent365ExporterOptions.ts
@@ -24,7 +24,8 @@ export type TokenResolver = (agentId: string, tenantId: string) => string | null
  * @property {boolean} [useS2SEndpoint] When true, exporter will POST to the S2S path (/observabilityService/tenants/{tenantId}/agents/{agentId}/traces).
  * @property {number} maxQueueSize Maximum span queue size before drops occur (passed to BatchSpanProcessor).
  * @property {number} scheduledDelayMilliseconds Delay between automatic batch flush attempts.
- * @property {number} exporterTimeoutMilliseconds Per-export timeout (abort if exceeded).
+ * @property {number} exporterTimeoutMilliseconds Maximum time (ms) the BatchSpanProcessor waits for the entire export() call to complete before giving up. Covers partitioning, token resolution, and all HTTP retries.
+ * @property {number} httpRequestTimeoutMilliseconds Timeout (ms) for each individual HTTP request to the observability backend. Applies per fetch() call inside the retry loop; each retry gets a fresh timeout.
  * @property {number} maxExportBatchSize Maximum number of spans per export batch.
  */
 export class Agent365ExporterOptions {
@@ -43,8 +44,11 @@ export class Agent365ExporterOptions {
   /** Delay (ms) between automatic batch flush attempts. */
   public scheduledDelayMilliseconds: number = 5000;
 
-  /** Per-export timeout in milliseconds. */
-  public exporterTimeoutMilliseconds: number = 30000;
+  /** Maximum time (ms) the BatchSpanProcessor waits for the entire export() call to complete. */
+  public exporterTimeoutMilliseconds: number = 90000;
+
+  /** Timeout (ms) for each individual HTTP request to the observability backend. Each retry attempt gets a fresh timeout. */
+  public httpRequestTimeoutMilliseconds: number = 30000;
 
   /** Maximum number of spans per export batch. */
   public maxExportBatchSize: number = 512;
diff --git a/tests/observability/extension/hosting/observability-hosting-manager.test.ts b/tests/observability/extension/hosting/observability-hosting-manager.test.ts
index 99eae6e3..7b2d5db7 100644
--- a/tests/observability/extension/hosting/observability-hosting-manager.test.ts
+++ b/tests/observability/extension/hosting/observability-hosting-manager.test.ts
@@ -12,24 +12,30 @@ function mockAdapter() {
 }
 
 describe('ObservabilityHostingManager', () => {
-  it('registers BaggageMiddleware by default', () => {
+  it('does not register BaggageMiddleware by default', () => {
     const adapter = mockAdapter();
     new ObservabilityHostingManager().configure(adapter, {});
+    expect(adapter.registered).toHaveLength(0);
+  });
+
+  it('registers BaggageMiddleware when enableBaggage is true', () => {
+    const adapter = mockAdapter();
+    new ObservabilityHostingManager().configure(adapter, { enableBaggage: true });
     expect(adapter.registered).toHaveLength(1);
     expect(adapter.registered[0]).toBeInstanceOf(BaggageMiddleware);
   });
 
-  it('registers both middleware when enableOutputLogging is true', () => {
+  it('registers both middleware when enableBaggage and enableOutputLogging are true', () => {
     const adapter = mockAdapter();
-    new ObservabilityHostingManager().configure(adapter, { enableOutputLogging: true });
+    new ObservabilityHostingManager().configure(adapter, { enableBaggage: true, enableOutputLogging: true });
     expect(adapter.registered).toHaveLength(2);
     expect(adapter.registered[0]).toBeInstanceOf(BaggageMiddleware);
     expect(adapter.registered[1]).toBeInstanceOf(OutputLoggingMiddleware);
   });
 
-  it('skips BaggageMiddleware when enableBaggage is false', () => {
+  it('registers only OutputLoggingMiddleware when enableOutputLogging is true and enableBaggage is omitted', () => {
     const adapter = mockAdapter();
-    new ObservabilityHostingManager().configure(adapter, { enableBaggage: false, enableOutputLogging: true });
+    new ObservabilityHostingManager().configure(adapter, { enableOutputLogging: true });
     expect(adapter.registered).toHaveLength(1);
     expect(adapter.registered[0]).toBeInstanceOf(OutputLoggingMiddleware);
   });
@@ -37,8 +43,8 @@ describe('ObservabilityHostingManager', () => {
   it('subsequent configure calls on same instance are no-ops', () => {
     const adapter = mockAdapter();
     const manager = new ObservabilityHostingManager();
-    manager.configure(adapter, { enableOutputLogging: true });
-    manager.configure(adapter, { enableOutputLogging: true });
+    manager.configure(adapter, { enableBaggage: true, enableOutputLogging: true });
+    manager.configure(adapter, { enableBaggage: true, enableOutputLogging: true });
     expect(adapter.registered).toHaveLength(2);
   });
 });