diff --git a/cmd/testworkflow-init/main.go b/cmd/testworkflow-init/main.go
index 7ed32ecb50..f89f593114 100644
--- a/cmd/testworkflow-init/main.go
+++ b/cmd/testworkflow-init/main.go
@@ -3,10 +3,12 @@ package main
 import (
 	"encoding/json"
 	"errors"
+	"fmt"
 	"os"
 	"os/signal"
 	"slices"
 	"strconv"
+	"sync/atomic"
 	"syscall"
 	"time"
 
@@ -310,6 +312,7 @@ func main() {
 			}
 
 			// Configure timeout finalizer
+			var hasTimeout, hasOwnTimeout atomic.Bool
 			finalizeTimeout := func() {
 				// Check timed out steps in leaf
 				timedOut := orchestration.GetTimedOut(leaf...)
@@ -321,6 +324,10 @@ func main() {
 				for _, r := range timedOut {
 					r.SetStatus(constants.StepStatusTimeout)
 					sub := state.GetSubSteps(r.Ref)
+					hasTimeout.Store(true)
+					if step.Ref == r.Ref {
+						hasOwnTimeout.Store(true)
+					}
 					for i := range sub {
 						if sub[i].IsFinished() {
 							continue
@@ -331,7 +338,6 @@ func main() {
 							sub[i].SetStatus(constants.StepStatusSkipped)
 						}
 					}
-					stdoutUnsafe.Println("Timed out.")
 				}
 				_ = orchestration.Executions.Kill()
 
@@ -358,6 +364,8 @@ func main() {
 				}
 
 				// Register timeouts
+				hasTimeout.Store(false)
+				hasOwnTimeout.Store(false)
 				stopTimeoutWatcher := orchestration.WatchTimeout(finalizeTimeout, leaf...)
 
 				// Run the command
@@ -366,12 +374,17 @@ func main() {
 				// Stop timer listener
 				stopTimeoutWatcher()
 
+				// Handle timeout gracefully
+				if hasOwnTimeout.Load() {
+					orchestration.Executions.ClearAbortedStatus()
+				}
+
 				// Ensure there won't be any hanging processes after the command is executed
 				_ = orchestration.Executions.Kill()
 
 				// TODO: Handle retry policy in tree independently
 				// Verify if there may be any other iteration
-				if step.Iteration >= step.Retry.Count {
+				if step.Iteration >= step.Retry.Count || (!hasOwnTimeout.Load() && hasTimeout.Load()) {
 					break
 				}
 
@@ -393,7 +406,15 @@ func main() {
 				// Continue with the next iteration
 				step.Iteration++
 				stdout.HintDetails(step.Ref, constants.InstructionIteration, step.Iteration)
-				stdoutUnsafe.Printf("\nExit code: %d • Retrying: attempt #%d (of %d):\n", step.ExitCode, step.Iteration, step.Retry.Count)
+				message := fmt.Sprintf("Exit code: %d", step.ExitCode)
+				if hasOwnTimeout.Load() {
+					message = "Timed out"
+				}
+				stdoutUnsafe.Printf("\n%s • Retrying: attempt #%d (of %d):\n", message, step.Iteration, step.Retry.Count)
+
+				// Restart start time for the next iteration to allow retries
+				now := time.Now()
+				step.StartedAt = &now
 			}
 		}
 
diff --git a/cmd/testworkflow-init/orchestration/executions.go b/cmd/testworkflow-init/orchestration/executions.go
index 5bf0eadd57..f1911bfcf4 100644
--- a/cmd/testworkflow-init/orchestration/executions.go
+++ b/cmd/testworkflow-init/orchestration/executions.go
@@ -34,6 +34,8 @@ type executionGroup struct {
 
 	paused  atomic.Bool
 	pauseMu sync.Mutex
+
+	softKillProgress atomic.Bool
 }
 
 func newExecutionGroup(outStream io.Writer, errStream io.Writer) *executionGroup {
@@ -142,6 +144,10 @@ func (e *executionGroup) IsAborted() bool {
 	return e.aborted.Load()
 }
 
+func (e *executionGroup) ClearAbortedStatus() {
+	e.aborted.Store(false)
+}
+
 type execution struct {
 	cmd   *exec.Cmd
 	cmdMu sync.Mutex
@@ -203,7 +209,7 @@ func (e *execution) Run() (*executionResult, error) {
 
 	// Mark the execution group as aborted when this process was aborted.
 	// In Kubernetes, when that child process is killed, it may mean OOM Kill.
-	if aborted && !e.group.aborted.Load() {
+	if aborted && !e.group.aborted.Load() && !e.group.softKillProgress.Load() {
 		e.group.Abort()
 	}