diff --git a/packages/moxxmpp/lib/src/xeps/xep_0198/negotiator.dart b/packages/moxxmpp/lib/src/xeps/xep_0198/negotiator.dart
index 62047dd..9c149c3 100644
--- a/packages/moxxmpp/lib/src/xeps/xep_0198/negotiator.dart
+++ b/packages/moxxmpp/lib/src/xeps/xep_0198/negotiator.dart
@@ -37,9 +37,15 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
 
   /// Flag indicating whether the resume failed (true) or succeeded (false).
   bool _resumeFailed = false;
+  bool get resumeFailed => _resumeFailed;
 
   /// Flag indicating whether the current stream is resumed (true) or not (false).
   bool _isResumed = false;
+  bool get isResumed => _isResumed;
+
+  /// Flag indicating that stream enablement failed
+  bool _streamEnablementFailed = false;
+  bool get streamEnablementFailed => _streamEnablementFailed;
 
   /// Logger
   final Logger _log = Logger('StreamManagementNegotiator');
@@ -48,8 +54,8 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
   bool _supported = false;
   bool get isSupported => _supported;
 
-  /// True if the current stream is resumed. False if not.
-  bool get isResumed => _isResumed;
+  /// True if we requested stream enablement inline
+  bool _inlineStreamEnablementRequested = false;
 
   @override
   bool canInlineFeature(List<XMLNode> features) {
@@ -112,6 +118,28 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
     _isResumed = true;
   }
 
+  Future<void> _onStreamEnablementSuccessful(XMLNode enabled) async {
+    assert(enabled.tag == 'enabled', 'The correct element must be used');
+    assert(enabled.xmlns == smXmlns, 'The correct element must be used');
+
+    final id = enabled.attributes['id'] as String?;
+    if (id != null && ['true', '1'].contains(enabled.attributes['resume'])) {
+      _log.info('Stream Resumption available');
+    }
+
+    await attributes.sendEvent(
+      StreamManagementEnabledEvent(
+        resource: attributes.getFullJID().resource,
+        id: id,
+        location: enabled.attributes['location'] as String?,
+      ),
+    );
+  }
+
+  void _onStreamEnablementFailed() {
+    _streamEnablementFailed = true;
+  }
+
   @override
   Future<Result<NegotiatorState, NegotiatorError>> negotiate(
     XMLNode nonza,
@@ -168,25 +196,13 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
       case _StreamManagementNegotiatorState.enableRequested:
         if (nonza.tag == 'enabled') {
           _log.finest('Stream Management enabled');
-
-          final id = nonza.attributes['id'] as String?;
-          if (id != null &&
-              ['true', '1'].contains(nonza.attributes['resume'])) {
-            _log.info('Stream Resumption available');
-          }
-
-          await attributes.sendEvent(
-            StreamManagementEnabledEvent(
-              resource: attributes.getFullJID().resource,
-              id: id,
-              location: nonza.attributes['location'] as String?,
-            ),
-          );
+          await _onStreamEnablementSuccessful(nonza);
 
           return const Result(NegotiatorState.done);
         } else {
           // We assume a <failed />
           _log.warning('Stream Management enablement failed');
+          _onStreamEnablementFailed();
           return const Result(NegotiatorState.done);
         }
     }
@@ -198,6 +214,8 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
     _supported = false;
     _resumeFailed = false;
     _isResumed = false;
+    _inlineStreamEnablementRequested = false;
+    _streamEnablementFailed = false;
 
     super.reset();
   }
@@ -210,11 +228,9 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
       return [];
     }
 
+    _inlineStreamEnablementRequested = true;
     return [
-      XMLNode.xmlns(
-        tag: 'enable',
-        xmlns: smXmlns,
-      ),
+      StreamManagementEnableNonza(),
     ];
   }
 
@@ -236,25 +252,36 @@ class StreamManagementNegotiator extends Sasl2FeatureNegotiator
     }
 
     return [
-      XMLNode.xmlns(
-        tag: 'resume',
-        xmlns: smXmlns,
-        attributes: {
-          'h': h.toString(),
-          'previd': srid,
-        },
+      StreamManagementResumeNonza(
+        srid,
+        h,
       ),
     ];
   }
 
   @override
   Future<Result<bool, NegotiatorError>> onSasl2Success(XMLNode response) async {
-    // TODO(PapaTutuWawa): Handle SM failures.
+    final enabled = response
+        .firstTag('bound', xmlns: bind2Xmlns)
+        ?.firstTag('enabled', xmlns: smXmlns);
     final resumed = response.firstTag('resumed', xmlns: smXmlns);
+    // We can only enable or resume->fail->enable. Thus, we check for enablement first
+    // and then exit.
+    if (_inlineStreamEnablementRequested) {
+      if (enabled != null) {
+        _log.finest('Inline stream enablement successful');
+        await _onStreamEnablementSuccessful(enabled);
+        return const Result(true);
+      } else {
+        _log.warning('Inline stream enablement failed');
+        _onStreamEnablementFailed();
+      }
+    }
+
     if (resumed == null) {
       _log.warning('Inline stream resumption failed');
       await _onStreamResumptionFailed();
-      state = NegotiatorState.retryLater;
+      state = NegotiatorState.done;
       return const Result(true);
     }
 
diff --git a/packages/moxxmpp/test/xeps/xep_0198_test.dart b/packages/moxxmpp/test/xeps/xep_0198_test.dart
index a0706e5..03e35c7 100644
--- a/packages/moxxmpp/test/xeps/xep_0198_test.dart
+++ b/packages/moxxmpp/test/xeps/xep_0198_test.dart
@@ -915,7 +915,7 @@ void main() {
   </stream:features>''',
       ),
       StanzaExpectation(
-        "<authenticate xmlns='urn:xmpp:sasl:2' mechanism='PLAIN'><user-agent id='d4565fa7-4d72-4749-b3d3-740edbf87770'><software>moxxmpp</software><device>PapaTutuWawa's awesome device</device></user-agent><initial-response>AHBvbHlub21kaXZpc2lvbgBhYWFh</initial-response><bind xmlns='urn:xmpp:bind:0'><enable xmlns='urn:xmpp:sm:3' /></bind><resume xmlns='urn:xmpp:sm:3' previd='test-prev-id' h='2' /></authenticate>",
+        "<authenticate xmlns='urn:xmpp:sasl:2' mechanism='PLAIN'><user-agent id='d4565fa7-4d72-4749-b3d3-740edbf87770'><software>moxxmpp</software><device>PapaTutuWawa's awesome device</device></user-agent><initial-response>AHBvbHlub21kaXZpc2lvbgBhYWFh</initial-response><bind xmlns='urn:xmpp:bind:0'><enable xmlns='urn:xmpp:sm:3' resume='true' /></bind><resume xmlns='urn:xmpp:sm:3' previd='test-prev-id' h='2' /></authenticate>",
         '''
 <success xmlns='urn:xmpp:sasl:2'>
   <authorization-identifier>polynomdivision@test.server</authorization-identifier>
@@ -982,4 +982,104 @@ void main() {
     );
     expect(conn.resource, 'test-resource');
   });
+
+  test('Test failed SASL2 inline stream resumption with Bind2', () async {
+    final fakeSocket = StubTCPSocket([
+      StringExpectation(
+        "<stream:stream xmlns='jabber:client' version='1.0' xmlns:stream='http://etherx.jabber.org/streams' to='test.server' xml:lang='en'>",
+        '''
+<stream:stream
+    xmlns="jabber:client"
+    version="1.0"
+    xmlns:stream="http://etherx.jabber.org/streams"
+    from="test.server"
+    xml:lang="en">
+  <stream:features xmlns="http://etherx.jabber.org/streams">
+    <mechanisms xmlns="urn:ietf:params:xml:ns:xmpp-sasl">
+      <mechanism>PLAIN</mechanism>
+    </mechanisms>
+    <authentication xmlns='urn:xmpp:sasl:2'>
+      <mechanism>PLAIN</mechanism>
+      <inline>
+        <resume xmlns="urn:xmpp:sm:3" />
+        <bind xmlns="urn:xmpp:bind:0">
+          <inline>
+            <feature var="urn:xmpp:sm:3" />
+          </inline>
+        </bind>
+      </inline>
+    </authentication>
+    <bind xmlns="urn:ietf:params:xml:ns:xmpp-bind">
+      <required/>
+    </bind>
+  </stream:features>''',
+      ),
+      StanzaExpectation(
+        "<authenticate xmlns='urn:xmpp:sasl:2' mechanism='PLAIN'><user-agent id='d4565fa7-4d72-4749-b3d3-740edbf87770'><software>moxxmpp</software><device>PapaTutuWawa's awesome device</device></user-agent><initial-response>AHBvbHlub21kaXZpc2lvbgBhYWFh</initial-response><bind xmlns='urn:xmpp:bind:0'><enable xmlns='urn:xmpp:sm:3' resume='true' /></bind><resume xmlns='urn:xmpp:sm:3' previd='test-prev-id' h='2' /></authenticate>",
+        '''
+<success xmlns='urn:xmpp:sasl:2'>
+  <authorization-identifier>polynomdivision@test.server/test-resource</authorization-identifier>
+  <failed xmlns='urn:xmpp:sm:3' />
+  <bound xmlns='urn:xmpp:sm:3'>
+    <failed xmlns='urn:xmpp:sm:3' />
+  </bound>
+</success>
+        ''',
+      ),
+    ]);
+    final sm = StreamManagementManager();
+    await sm.setState(
+      sm.state.copyWith(
+        c2s: 25,
+        s2c: 2,
+        streamResumptionId: 'test-prev-id',
+      ),
+    );
+
+    final conn = XmppConnection(
+      TestingReconnectionPolicy(),
+      AlwaysConnectedConnectivityManager(),
+      fakeSocket,
+    )
+      ..setConnectionSettings(
+        ConnectionSettings(
+          jid: JID.fromString('polynomdivision@test.server'),
+          password: 'aaaa',
+          useDirectTLS: true,
+        ),
+      )
+      ..setResource('test-resource', triggerEvent: false);
+    await conn.registerManagers([
+      RosterManager(TestingRosterStateManager('', [])),
+      DiscoManager([]),
+      sm,
+    ]);
+
+    final smn = StreamManagementNegotiator();
+    await conn.registerFeatureNegotiators([
+      SaslPlainNegotiator(),
+      ResourceBindingNegotiator(),
+      smn,
+      Bind2Negotiator(),
+      Sasl2Negotiator(
+        userAgent: const UserAgent(
+          id: 'd4565fa7-4d72-4749-b3d3-740edbf87770',
+          software: 'moxxmpp',
+          device: "PapaTutuWawa's awesome device",
+        ),
+      ),
+    ]);
+
+    final result = await conn.connect(
+      waitUntilLogin: true,
+      shouldReconnect: false,
+      enableReconnectOnSuccess: false,
+    );
+    expect(result.isType<NegotiatorError>(), false);
+
+    expect(smn.isResumed, false);
+    expect(smn.resumeFailed, true);
+    expect(smn.streamEnablementFailed, true);
+    expect(conn.resource, 'test-resource');
+  });
 }