diff --git a/src/components/moderation/ModerationQueue.tsx b/src/components/moderation/ModerationQueue.tsx
index 3fdaec8e..be1b084a 100644
--- a/src/components/moderation/ModerationQueue.tsx
+++ b/src/components/moderation/ModerationQueue.tsx
@@ -776,6 +776,22 @@ export const ModerationQueue = forwardRef<ModerationQueueRef>((props, ref) => {
 
   const handleRetryFailedItems = async (item: ModerationItem) => {
     setActionLoading(item.id);
+    
+    // Optimistic UI update - remove from queue immediately
+    const shouldRemove = (
+      activeStatusFilter === 'pending' || 
+      activeStatusFilter === 'flagged' || 
+      activeStatusFilter === 'partially_approved'
+    );
+    
+    if (shouldRemove) {
+      requestAnimationFrame(() => {
+        setItems(prev => prev.filter(i => i.id !== item.id));
+        recentlyRemovedRef.current.add(item.id);
+        setTimeout(() => recentlyRemovedRef.current.delete(item.id), 3000);
+      });
+    }
+    
     try {
       // Fetch failed/rejected submission items
       const { data: failedItems, error: fetchError } = await supabase
@@ -812,7 +828,6 @@ export const ModerationQueue = forwardRef<ModerationQueueRef>((props, ref) => {
         description: `Processed ${failedItems.length} failed item(s)`,
       });
 
-      // No refresh needed - item already updated optimistically
     } catch (error: any) {
       console.error('Error retrying failed items:', error);
       toast({
diff --git a/supabase/functions/process-selective-approval/index.ts b/supabase/functions/process-selective-approval/index.ts
index 8c6b3e42..bf8c2736 100644
--- a/supabase/functions/process-selective-approval/index.ts
+++ b/supabase/functions/process-selective-approval/index.ts
@@ -197,6 +197,7 @@ serve(async (req) => {
   itemType: string;
   success: boolean;
   error?: string;
+  isDependencyFailure?: boolean;
 }> = [];
 
     // Process items in order
@@ -285,23 +286,71 @@ serve(async (req) => {
         console.log(`Successfully approved item ${item.id} -> entity ${entityId}`);
       } catch (error) {
         console.error(`Error processing item ${item.id}:`, error);
+        
+        const isDependencyError = error instanceof Error && (
+          error.message.includes('Missing dependency') ||
+          error.message.includes('depends on') ||
+          error.message.includes('Circular dependency')
+        );
+        
         approvalResults.push({
           itemId: item.id,
           itemType: item.item_type,
           success: false,
-          error: error instanceof Error ? error.message : 'Unknown error'
+          error: error instanceof Error ? error.message : 'Unknown error',
+          isDependencyFailure: isDependencyError
         });
+        
+        // Mark item as rejected in submission_items
+        const { error: markRejectedError } = await supabase
+          .from('submission_items')
+          .update({
+            status: 'rejected',
+            rejection_reason: error instanceof Error ? error.message : 'Unknown error',
+            updated_at: new Date().toISOString()
+          })
+          .eq('id', item.id);
+        
+        if (markRejectedError) {
+          console.error(`Failed to mark item ${item.id} as rejected:`, markRejectedError);
+        }
       }
     }
 
-    // Update submission status
+    // Check if any failures were dependency-related
+    const hasDependencyFailure = approvalResults.some(r => 
+      !r.success && r.isDependencyFailure
+    );
+
     const allApproved = approvalResults.every(r => r.success);
+    const someApproved = approvalResults.some(r => r.success);
+    const allFailed = approvalResults.every(r => !r.success);
+
+    // Determine final status:
+    // - If dependency validation failed: keep pending for escalation
+    // - If all approved: approved
+    // - If some approved: partially_approved
+    // - If all failed but no dependency issues: rejected (can retry)
+    const finalStatus = hasDependencyFailure && !someApproved
+      ? 'pending'  // Keep pending for escalation only
+      : allApproved
+        ? 'approved'
+        : allFailed
+          ? 'rejected'  // Total failure, allow retry
+          : 'partially_approved';  // Mixed results
+
+    const reviewerNotes = hasDependencyFailure && !someApproved
+      ? 'Submission has unresolved dependencies. Escalation required.'
+      : undefined;
+
     const { error: updateError } = await supabase
       .from('content_submissions')
       .update({
-        status: allApproved ? 'approved' : 'partially_approved',
+        status: finalStatus,
         reviewer_id: authenticatedUserId,
-        reviewed_at: new Date().toISOString()
+        reviewed_at: new Date().toISOString(),
+        reviewer_notes: reviewerNotes,
+        escalated: hasDependencyFailure && !someApproved ? true : undefined
       })
       .eq('id', submissionId);
 
@@ -313,7 +362,7 @@ serve(async (req) => {
       JSON.stringify({
         success: true,
         results: approvalResults,
-        submissionStatus: allApproved ? 'approved' : 'partially_approved'
+        submissionStatus: finalStatus
       }),
       { headers: { ...corsHeaders, 'Content-Type': 'application/json' } }
     );
@@ -335,7 +384,10 @@ function topologicalSort(items: any[]): any[] {
   const visit = (item: any) => {
     if (visited.has(item.id)) return;
     if (visiting.has(item.id)) {
-      throw new Error(`Circular dependency detected for item ${item.id}`);
+      throw new Error(
+        `Circular dependency detected: item ${item.id} (${item.item_type}) ` +
+        `creates a dependency loop. This submission requires escalation.`
+      );
     }
 
     visiting.add(item.id);
@@ -343,7 +395,11 @@ function topologicalSort(items: any[]): any[] {
     if (item.depends_on) {
       const parent = items.find(i => i.id === item.depends_on);
       if (!parent) {
-        throw new Error(`Missing dependency: item ${item.id} depends on ${item.depends_on} which is not in the submission`);
+        throw new Error(
+          `Missing dependency: item ${item.id} (${item.item_type}) ` +
+          `depends on ${item.depends_on} which is not in this submission or has not been approved. ` +
+          `This submission requires escalation.`
+        );
       }
       visit(parent);
     }