--- a/layout/tools/reftest/README.txt
+++ b/layout/tools/reftest/README.txt
@@ -35,17 +35,25 @@ Manifest Format
 
 The test manifest format is a plain text file.  A line starting with a
 "#" is a comment.  Lines may be commented using whitespace followed by
 a "#" and the comment.  Each non-blank line (after removal of comments)
 must be one of the following:
 
 1. Inclusion of another manifest
 
-   include <relative_path>
+   <failure-type>* include <relative_path>
+
+   <failure-type> is the same as listed below for a test item.  As for 
+   test items, multiple failure types listed on the same line are 
+   combined by using the last matching failure type listed.  However, 
+   the failure type on a manifest is combined with the failure type on 
+   the test (or on a nested manifest) with the rule that the last in the
+   following list wins:  fails, random, skip.  (In other words, skip 
+   always wins, and random beats fails.)
 
 2. A test item
 
    <failure-type>* [<http>] <type> <url> <url_ref>
 
    where
 
    a. <failure-type> (optional) is one of the following:

--- a/layout/tools/reftest/reftest.js
+++ b/layout/tools/reftest/reftest.js
@@ -116,16 +116,22 @@ var gSlowestTestURL;
 var gDrawWindowFlags;
 
 const TYPE_REFTEST_EQUAL = '==';
 const TYPE_REFTEST_NOTEQUAL = '!=';
 const TYPE_LOAD = 'load';     // test without a reference (just test that it does
                               // not assert, crash, hang, or leak)
 const TYPE_SCRIPT = 'script'; // test contains individual test results
 
+// The order of these constants matters, since when we have a status
+// listed for a *manifest*, we combine the status with the status for
+// the test by using the *larger*.  
+// FIXME: In the future, we may also want to use this rule for combining
+// statuses that are on the same line (rather than making the last one
+// win).
 const EXPECTED_PASS = 0;
 const EXPECTED_FAIL = 1;
 const EXPECTED_RANDOM = 2;
 const EXPECTED_DEATH = 3;  // test must be skipped to avoid e.g. crash/hang
 
 const gProtocolRE = /^\w+:/;
 
 var HTTP_SERVER_PORT = 4444;
@@ -500,22 +506,22 @@ function BuildConditionSandbox(aURL) {
 }
 
 function ReadTopManifest(aFileURL)
 {
     gURLs = new Array();
     var url = gIOService.newURI(aFileURL, null, null);
     if (!url)
       throw "Expected a file or http URL for the manifest.";
-    ReadManifest(url);
+    ReadManifest(url, EXPECTED_PASS);
 }
 
 // Note: If you materially change the reftest manifest parsing,
 // please keep the parser in print-manifest-dirs.py in sync.
-function ReadManifest(aURL)
+function ReadManifest(aURL, inherited_status)
 {
     var secMan = CC[NS_SCRIPTSECURITYMANAGER_CONTRACTID]
                      .getService(CI.nsIScriptSecurityManager);
 
     var listURL = aURL;
     var channel = gIOService.newChannelFromURI(aURL);
     var inputStream = channel.open();
     if (channel instanceof Components.interfaces.nsIHttpChannel
@@ -553,16 +559,17 @@ function ReadManifest(aURL)
         }
 
         var expected_status = EXPECTED_PASS;
         var allow_silent_fail = false;
         var minAsserts = 0;
         var maxAsserts = 0;
         var needs_focus = false;
         var slow = false;
+        
         while (items[0].match(/^(fails|needs-focus|random|skip|asserts|slow|silentfail)/)) {
             var item = items.shift();
             var stat;
             var cond;
             var m = item.match(/^(fails|random|skip|silentfail)-if(\(.*\))$/);
             if (m) {
                 stat = m[1];
                 // Note: m[2] contains the parentheses, and we want them.
@@ -608,16 +615,18 @@ function ReadManifest(aURL)
                 } else if (stat == "skip") {
                     expected_status = EXPECTED_DEATH;
                 } else if (stat == "silentfail") {
                     allow_silent_fail = true;
                 }
             }
         }
 
+        expected_status = Math.max(expected_status, inherited_status);
+
         if (minAsserts > maxAsserts) {
             throw "Bad range in manifest file " + aURL.spec + " line " + lineNo;
         }
 
         var runHttp = false;
         var httpDepth;
         if (items[0] == "HTTP") {
             runHttp = (aURL.scheme == "file"); // We can't yet run the local HTTP server
@@ -644,17 +653,17 @@ function ReadManifest(aURL)
         }
 
         if (items[0] == "include") {
             if (items.length != 2 || runHttp)
                 throw "Error 2 in manifest file " + aURL.spec + " line " + lineNo;
             var incURI = gIOService.newURI(items[1], null, listURL);
             secMan.checkLoadURI(aURL, incURI,
                                 CI.nsIScriptSecurityManager.DISALLOW_SCRIPT);
-            ReadManifest(incURI);
+            ReadManifest(incURI, expected_status);
         } else if (items[0] == TYPE_LOAD) {
             if (items.length != 2 ||
                 (expected_status != EXPECTED_PASS &&
                  expected_status != EXPECTED_DEATH))
                 throw "Error 3 in manifest file " + aURL.spec + " line " + lineNo;
             var [testURI] = runHttp
                             ? ServeFiles(aURL, httpDepth,
                                          listURL, [items[1]])