Does this issue occur when all extensions are disabled?: YES

I’ve tested the new Chat Mode feature, and it currently cannot function like Agent Mode. Despite checking and confirming that all tools (e.g., file creation, terminal execution, tool calling) are available and enabled, the new chat mode is unable to:
• Create files
• Execute terminal code
• Call or use built-in tools (e.g., Python, image generation, web access, etc.)

I’ve retried multiple times and verified the settings, but the issue persists.

Steps to Reproduce:
1. Switch to the new Chat Mode
2. Check that all tools are enabled
3. Attempt to create a file or run terminal code

Expected Behavior:
Chat Mode should behave like Agent Mode and be able to use built-in tools when enabled.

Actual Behavior:
Chat Mode fails to perform any actions involving tools – it neither creates files nor executes any code or tool-based operations.

• VS Code Version: Latest
• OS Version: Win 11 26100.4349