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I’m working on setting up a new (old) MacBook Pro this evening when I came across an oddity. Colors in iTerm2 were working, but not in xterm-256color mode. Both laptops are sitting on the table next to each other, so I started debugging.

There’s all manner of bugs that have been reported, but no amount of tweaking my environment variables worked. Some time during the process, Xcode 3 finished installing and all of the sudden things started working.

My guess is that Xcode ships with X11 which is needed for xterm-256color to work, although I’m not planning on uninstalling just to see if it works. At any rate, if you’re having issues with 256-color mode in iTerm2, check to make sure you have Xcode installed.