This paper presents several innovations in the development of model-ba
sed diagnostic systems for diagnosing faults in continuous dynamic phy
sical systems. The approach utilises recent developments in qualitativ
e simulation techniques to cope with the inherent lack of modelling kn
owledge and to provide a qualitative description of the dynamic behavi
our. In particular, techniques for the synchronous tracking of the mod
el-based predictions and the evolution of the physical system between
equilibria are developed. A discrepancy metric is defined that allows
for the continuous degradation of the system behaviour from normal to
faulty to be detected. And, most fundamentally, a method for iterative
ly searching through the space of possible model variations is present
ed. This provides explicit feedback from detected discrepancies to mod
el adjustments and has the important advantage of reducing the sensiti
vity to modelling errors and approximate fault models. In the limit, n
o fault models are required. However, if available these can be used t
o initialise the search. An example is included which outlines the bas
ic approach discussed in this paper.