diff --git a/AGENTS.md b/AGENTS.md
index 8cb0969320..5ada25794f 100644
--- a/AGENTS.md
+++ b/AGENTS.md
@@ -552,9 +552,9 @@ When adding code that needs a new string, decide up front which rule it falls un
   - The `--public` flag is supported by both `scripts/dev-with-automation.mjs` (parsed in `parseArgs()`, propagated via `config.isPublic`) and `bin/agent-canvas.mjs` (passed as `isPublic` to `main()`).
   - The 401 detection lives in `src/api/agent-server-compatibility.ts` (`isAgentServerAuthError()`), and the gate is in `src/root.tsx`'s `App` component, between the `AgentServerUnavailableError` check and the `<Outlet />` render.
   - **Key rotation resilience (non-public):** `syncLauncherDefaultLocalBackend()` in `src/api/backend-registry/storage.ts` re-runs at module init: for any stored backend whose id is `"default-local"` and whose host matches (or is loopback-equivalent to) the launcher's default, its `apiKey` is overwritten with the current `makeDefaultLocalBackend().apiKey` (sourced from `VITE_SESSION_API_KEY` or, in the published-binary path, `window.__AGENT_CANVAS_SESSION_API_KEY__`). E2E coverage: `tests/e2e/mock-llm/backends/mock-llm-auth-modes.spec.ts` (fresh-install, key-rotation, and public-mode scenarios).
-- Backend/footer actions that launch modals from inside a dropdown or popover should intercept `onMouseDown` to keep the menu mounted, then perform the actual open on `onClick`. Current examples: `Add backend` / `Manage backends` in `src/components/features/backends/backend-selector.tsx`, plus the mirrored workspace-footer buttons in `src/components/features/conversation-panel/new-conversation-button.tsx`.
+- Backend/footer actions that launch modals from inside a dropdown or popover should intercept `onMouseDown` to keep the menu mounted, then perform the actual open on `onClick`. Current examples: `Add backend` / `Manage backends` in `src/components/features/backends/backend-selector.tsx`, plus the mirrored workspace-footer buttons in `src/components/features/conversation-panel/local-new-conversation-menu.tsx`.
 - `BackendSelector`'s cloud-org switch paths should never rethrow from the dropdown `onChange` handler: unexpected non-Axios failures need a generic error toast instead of an unhandled promise rejection, and the malformed `(cloud backend, null org)` self-heal path should fall back to the bundled backend if `/switch` fails.
-- `NewConversationButton` should support keyboard dismissal (`Escape`) for its inline popover, while still keeping the popover open when its modal children (`FolderBrowserModal`, `ManageWorkspacesModal`) are active.
+- `LocalNewConversationMenu` should support keyboard dismissal (`Escape`) for its inline popover, while still keeping the popover open when its modal children (`FolderBrowserModal`, `ManageWorkspacesModal`) are active.
 
 - README expectation: keep the first section as a concrete, chronological from-scratch quickstart for running this frontend against a real `openhands-agent-server` (clone, install prerequisites, optional `.env`, run `npm run dev`).
 - Windows-specific command syntax (PowerShell) lives in `README.windows.md`. When changing install / Docker sandbox instructions in `README.md`, update `README.windows.md` in the same PR to keep them in sync.
@@ -622,7 +622,7 @@ When adding code that needs a new string, decide up front which rule it falls un
 - Home page workspace UX (local backend):
   - `FolderBrowserModal`'s "Use this folder" button adds **only the currently navigated directory** as a single workspace (named by its basename). It no longer iterates `subdirs` and adds each child as a separate workspace.
   - The `WorkspaceDropdown` sticky footer now exposes both "+ Add Workspace" (opens the folder browser) and "Manage Workspaces" (opens `ManageWorkspacesModal`, which lets users remove individual workspaces via `useWorkspacesStore.removeWorkspace`). The Manage button is hidden when there are no workspaces yet.
-  - The sidebar "+ New Conversation" trigger (`NewConversationButton` in `src/components/features/conversation-panel/`) opens a popover that is a **flat list**, not the home-screen combobox: a leading "No workspace" entry plus one entry per stored workspace, each clicking through to `useCreateConversation` immediately (no separate Launch button). It mirrors the dropdown footer actions/pattern (`+ Add Workspace`, `Manage Workspaces`) locally rather than embedding `WorkspaceDropdown` itself.
+  - The conversation-panel new-thread picker (`ConversationPanelNewThreadPicker` in `src/components/features/conversation-panel/conversation-panel-new-thread-picker.tsx`, mounted from `conversation-panel.tsx`) is a `FolderPlus` icon button in the conversation-list header, not a labelled "+ New Conversation" button, and it branches on `backendKind`. Local backends get `LocalNewConversationMenu`, whose popover is a **flat list**, not the home-screen combobox: a leading "No workspace" entry plus one entry per stored workspace, each clicking through to `useCreateConversation` immediately (no separate Launch button). It mirrors the dropdown footer actions/pattern (`+ Add Workspace`, `Manage Workspaces`) locally rather than embedding `WorkspaceDropdown` itself. Cloud backends get `CloudNewConversationMenu` instead, a searchable repository picker (`useGitRepositories` / `useSearchRepositories`) with no workspace entries and no footer actions. The sidebar rail's "+ New Chat" item is a nav link to `/conversations` (`src/components/features/sidebar/sidebar-rail-body.tsx`), not this popover.
   - `useResolvedWorkspaces()` now returns `isLoading` / `isError` for parent-directory scans; `WorkspaceSelectionForm` should surface that state (status text and disabling the empty dropdown while parent results are still loading) instead of assuming the merged list is immediately ready.
   - `ManageWorkspacesModal` should require a confirmation step before removing either a saved workspace or a workspace parent; parent removals should mention the child-workspace impact, and tests should assert both the confirmation flow and that removing the selected workspace clears the launch selection.
   - In `useWorkspacesStore`, keep `clearWorkspaces()` scoped to literal workspaces only; use explicit helpers like `clearWorkspaceParents()` / `clearAll()` for broader resets so future callers do not accidentally wipe parent registrations.
diff --git a/__tests__/components/features/sidebar/sidebar.test.tsx b/__tests__/components/features/sidebar/sidebar.test.tsx
index a82a60ffa4..194aa439da 100644
--- a/__tests__/components/features/sidebar/sidebar.test.tsx
+++ b/__tests__/components/features/sidebar/sidebar.test.tsx
@@ -191,13 +191,6 @@ vi.mock("#/components/features/backends/manage-backends-modal", () => ({
   ),
 }));
 
-vi.mock(
-  "#/components/features/conversation-panel/new-conversation-button",
-  () => ({
-    NewConversationButton: () => <div data-testid="new-conversation-button" />,
-  }),
-);
-
 vi.mock("#/components/features/sidebar/sidebar-conversation-list", () => ({
   SidebarConversationList: () => (
     <div data-testid="sidebar-conversation-list" />