diff --git a/crates/core/src/operations/put.rs b/crates/core/src/operations/put.rs
index 16ad8e538..5b9ffb9f9 100644
--- a/crates/core/src/operations/put.rs
+++ b/crates/core/src/operations/put.rs
@@ -1096,7 +1096,7 @@ pub(crate) async fn request_put(op_manager: &OpManager, mut put_op: PutOp) -> Re
         return Ok(());
     }
 
-    // At least one peer found - forward to network
+    // At least one peer found - cache locally first, then forward to network
     let target_peer = target.unwrap();
 
     tracing::debug!(
@@ -1104,14 +1104,40 @@ pub(crate) async fn request_put(op_manager: &OpManager, mut put_op: PutOp) -> Re
         %key,
         target_peer = %target_peer.peer,
         target_location = ?target_peer.location,
-        "Forwarding PUT to target peer"
+        "Caching state locally before forwarding PUT to target peer"
+    );
+
+    // Cache the contract state locally before forwarding
+    // This ensures the publishing node has immediate access to the new state
+    let updated_value = put_contract(
+        op_manager,
+        key,
+        value.clone(),
+        related_contracts.clone(),
+        &contract,
+    )
+    .await
+    .map_err(|e| {
+        tracing::error!(
+            tx = %id,
+            %key,
+            error = %e,
+            "Failed to cache state locally before forwarding PUT"
+        );
+        e
+    })?;
+
+    tracing::debug!(
+        tx = %id,
+        %key,
+        "Local cache updated, now forwarding PUT to target peer"
     );
 
     put_op.state = Some(PutState::AwaitingResponse {
         key,
         upstream: None,
         contract: contract.clone(),
-        state: value.clone(),
+        state: updated_value.clone(),
         subscribe,
     });
 
@@ -1121,7 +1147,7 @@ pub(crate) async fn request_put(op_manager: &OpManager, mut put_op: PutOp) -> Re
         sender: own_location,
         contract,
         related_contracts,
-        value,
+        value: updated_value,
         htl,
         target: target_peer,
     };
diff --git a/crates/core/src/operations/update.rs b/crates/core/src/operations/update.rs
index e67be5c16..dd870257c 100644
--- a/crates/core/src/operations/update.rs
+++ b/crates/core/src/operations/update.rs
@@ -1011,7 +1011,36 @@ pub(crate) async fn request_update(
     };
 
     // Normal case: we found a remote target
+    // Apply the update locally first to ensure the initiating peer has the updated state
     let id = update_op.id;
+
+    tracing::debug!(
+        tx = %id,
+        %key,
+        target_peer = %target.peer,
+        "Applying UPDATE locally before forwarding to target peer"
+    );
+
+    // Apply update locally - this ensures the initiating peer serves the updated state
+    // even if the remote UPDATE times out or fails
+    let updated_value = update_contract(op_manager, key, value.clone(), related_contracts.clone())
+        .await
+        .map_err(|e| {
+            tracing::error!(
+                tx = %id,
+                %key,
+                error = %e,
+                "Failed to apply update locally before forwarding UPDATE"
+            );
+            e
+        })?;
+
+    tracing::debug!(
+        tx = %id,
+        %key,
+        "Local update complete, now forwarding UPDATE to target peer"
+    );
+
     if let Some(stats) = &mut update_op.stats {
         stats.target = Some(target.clone());
     }
@@ -1026,7 +1055,7 @@ pub(crate) async fn request_update(
         sender,
         related_contracts,
         target,
-        value,
+        value: updated_value, // Send the updated value, not the original
     };
 
     let op = UpdateOp {
diff --git a/crates/core/tests/connectivity.rs b/crates/core/tests/connectivity.rs
index d4798445d..174138736 100644
--- a/crates/core/tests/connectivity.rs
+++ b/crates/core/tests/connectivity.rs
@@ -226,6 +226,17 @@ async fn test_gateway_reconnection() -> TestResult {
                     recv_contract.as_ref().expect("Contract should exist").key(),
                     contract_key
                 );
+                if recv_state != wrapped_state {
+                    eprintln!("State mismatch!");
+                    eprintln!(
+                        "Expected state: {:?}",
+                        String::from_utf8_lossy(wrapped_state.as_ref())
+                    );
+                    eprintln!(
+                        "Received state: {:?}",
+                        String::from_utf8_lossy(recv_state.as_ref())
+                    );
+                }
                 assert_eq!(recv_state, wrapped_state);
                 tracing::info!("Initial GET successful");
             }
diff --git a/tests/test-contract-integration/src/lib.rs b/tests/test-contract-integration/src/lib.rs
index c880752dc..5c3f1d61b 100644
--- a/tests/test-contract-integration/src/lib.rs
+++ b/tests/test-contract-integration/src/lib.rs
@@ -86,7 +86,8 @@ impl ContractInterface for Contract {
         data: Vec<UpdateData<'static>>,
     ) -> Result<UpdateModification<'static>, ContractError> {
         // Deserialize the current state
-        let mut todo_list: TodoList = match serde_json::from_slice(state.as_ref()) {
+        let original_state_bytes = state.as_ref();
+        let mut todo_list: TodoList = match serde_json::from_slice(original_state_bytes) {
             Ok(list) => list,
             Err(e) => return Err(ContractError::Deser(e.to_string())),
         };
@@ -161,16 +162,23 @@ impl ContractInterface for Contract {
             }
         }
 
-        // Increment the state version
-        todo_list.version += 1;
-
-        // Serialize the new state
-        let new_state = match serde_json::to_vec(&todo_list) {
-            Ok(bytes) => State::from(bytes),
-            Err(e) => return Err(ContractError::Other(e.to_string())),
-        };
-
-        Ok(UpdateModification::valid(new_state))
+        // Check if the state actually changed by comparing serialized forms
+        let new_state_bytes =
+            serde_json::to_vec(&todo_list).map_err(|e| ContractError::Other(e.to_string()))?;
+        let state_changed = original_state_bytes != new_state_bytes.as_slice();
+
+        // Only increment version if the state actually changed
+        // This prevents double-incrementing when the same state is merged at multiple peers
+        if state_changed {
+            todo_list.version += 1;
+            // Re-serialize with incremented version
+            let new_state =
+                serde_json::to_vec(&todo_list).map_err(|e| ContractError::Other(e.to_string()))?;
+            Ok(UpdateModification::valid(State::from(new_state)))
+        } else {
+            // Reuse already serialized bytes since state didn't change
+            Ok(UpdateModification::valid(State::from(new_state_bytes)))
+        }
     }
 
     fn summarize_state(