diff --git a/pyproject.toml b/pyproject.toml
index 53e8ea16..aa406a5d 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -1,6 +1,6 @@
 [project]
 name = "sap-cloud-sdk"
-version = "0.56.0"
+version = "0.56.1"
 description = "SAP Cloud SDK for Python"
 readme = "README.md"
 license = "Apache-2.0"
diff --git a/src/sap_cloud_sdk/agentgateway/_customer.py b/src/sap_cloud_sdk/agentgateway/_customer.py
index 25e2d90c..122fb99d 100644
--- a/src/sap_cloud_sdk/agentgateway/_customer.py
+++ b/src/sap_cloud_sdk/agentgateway/_customer.py
@@ -21,6 +21,8 @@
 import tempfile
 import uuid
 
+import anyio
+
 import httpx
 from mcp import ClientSession
 from mcp.client.streamable_http import streamable_http_client
@@ -664,16 +666,17 @@ async def _list_server_tools(
             *_,
         ):
             async with ClientSession(read, write) as session:
-                init_result = await session.initialize()
+                with anyio.fail_after(timeout):
+                    init_result = await session.initialize()
 
-                server_name = mcp_server_name(init_result)
-                if not server_name:
-                    raise AgentGatewaySDKError(
-                        f"MCP server at '{url}' did not provide its server name "
-                        "(serverInfo/server_info). This is required by the MCP protocol."
-                    )
+                    server_name = mcp_server_name(init_result)
+                    if not server_name:
+                        raise AgentGatewaySDKError(
+                            f"MCP server at '{url}' did not provide its server name "
+                            "(serverInfo/server_info). This is required by the MCP protocol."
+                        )
 
-                result = await session.list_tools()
+                    result = await session.list_tools()
                 tools = result.tools or []
 
                 return [
diff --git a/src/sap_cloud_sdk/agentgateway/_lob.py b/src/sap_cloud_sdk/agentgateway/_lob.py
index 46b1aad4..2241f897 100644
--- a/src/sap_cloud_sdk/agentgateway/_lob.py
+++ b/src/sap_cloud_sdk/agentgateway/_lob.py
@@ -10,6 +10,8 @@
 import os
 import uuid
 
+import anyio
+
 import httpx
 from mcp import ClientSession
 from mcp.client.streamable_http import streamable_http_client
@@ -386,9 +388,10 @@ async def list_server_tools(
             *_,
         ):
             async with ClientSession(read, write) as session:
-                init_result = await session.initialize()
-                server_name = mcp_server_name(init_result) or fragment_name
-                result = await session.list_tools()
+                with anyio.fail_after(timeout):
+                    init_result = await session.initialize()
+                    server_name = mcp_server_name(init_result) or fragment_name
+                    result = await session.list_tools()
                 tools = result.tools or []
                 if not tools:
                     logger.info(
diff --git a/tests/agentgateway/unit/test_customer.py b/tests/agentgateway/unit/test_customer.py
index 72e03efe..f358cb9f 100644
--- a/tests/agentgateway/unit/test_customer.py
+++ b/tests/agentgateway/unit/test_customer.py
@@ -15,6 +15,7 @@
     get_mcp_tools_customer,
     call_mcp_tool_customer,
     _build_mcp_url,
+    _list_server_tools,
     _INTEGRATION_CLIENT_ID_ENV,
     _INTEGRATION_AUTH_URL_ENV,
     _INTEGRATION_GATEWAY_URL_ENV,
@@ -771,6 +772,89 @@ async def mock_list(url, token, timeout):
         assert result[0].name == "tool-ok"
 
 
+# ============================================================
+# Test: _list_server_tools
+# ============================================================
+
+
+class TestListServerTools:
+    """Tests for _list_server_tools async function."""
+
+    @pytest.mark.asyncio
+    async def test_raises_timeout_when_initialize_hangs(self):
+        """Raise TimeoutError when initialize() never returns (plain-text SSE body simulation)."""
+        import anyio
+
+        async def _hang(*a, **kw):
+            await anyio.sleep(9999)
+
+        with (
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.httpx.AsyncClient"
+            ) as mock_http,
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.streamable_http_client"
+            ) as mock_stream,
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.ClientSession"
+            ) as mock_session,
+        ):
+            mock_http.return_value.__aenter__.return_value = AsyncMock()
+            mock_stream.return_value.__aenter__.return_value = (
+                AsyncMock(),
+                AsyncMock(),
+                None,
+            )
+
+            mock_session_instance = AsyncMock()
+            mock_session_instance.initialize = AsyncMock(side_effect=_hang)
+            mock_session.return_value.__aenter__.return_value = mock_session_instance
+
+            with pytest.raises(TimeoutError):
+                await _list_server_tools(
+                    "https://example.com/mcp", "token", timeout=0.05
+                )
+
+    @pytest.mark.asyncio
+    async def test_raises_timeout_when_list_tools_hangs(self):
+        """Raise TimeoutError when list_tools() never returns (SSE stream stalled simulation)."""
+        import anyio
+
+        async def _hang(*a, **kw):
+            await anyio.sleep(9999)
+
+        with (
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.httpx.AsyncClient"
+            ) as mock_http,
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.streamable_http_client"
+            ) as mock_stream,
+            patch(
+                "sap_cloud_sdk.agentgateway._customer.ClientSession"
+            ) as mock_session,
+        ):
+            mock_http.return_value.__aenter__.return_value = AsyncMock()
+            mock_stream.return_value.__aenter__.return_value = (
+                AsyncMock(),
+                AsyncMock(),
+                None,
+            )
+
+            mock_init = MagicMock()
+            mock_init.server_info = MagicMock()
+            mock_init.server_info.name = "test-server"
+            mock_session_instance = AsyncMock()
+            mock_session_instance.initialize = AsyncMock(return_value=mock_init)
+            mock_session_instance.list_tools = AsyncMock(side_effect=_hang)
+            mock_session.return_value.__aenter__.return_value = mock_session_instance
+
+            with pytest.raises(TimeoutError):
+                await _list_server_tools(
+                    "https://example.com/mcp", "token", timeout=0.05
+                )
+
+
 # ============================================================
 # Test: call_mcp_tool_customer
 # ============================================================
diff --git a/tests/agentgateway/unit/test_lob.py b/tests/agentgateway/unit/test_lob.py
index bd33665a..4d88d434 100644
--- a/tests/agentgateway/unit/test_lob.py
+++ b/tests/agentgateway/unit/test_lob.py
@@ -1052,6 +1052,71 @@ async def test_falls_back_to_fragment_name_when_server_info_missing(self):
 
         assert result[0].server_name == "my-fragment"
 
+    @pytest.mark.asyncio
+    async def test_raises_timeout_when_initialize_hangs(self):
+        """Raise TimeoutError when initialize() never returns (plain-text SSE body simulation)."""
+        import anyio
+
+        async def _hang(*a, **kw):
+            await anyio.sleep(9999)
+
+        with (
+            patch("sap_cloud_sdk.agentgateway._lob.httpx.AsyncClient") as mock_http,
+            patch(
+                "sap_cloud_sdk.agentgateway._lob.streamable_http_client"
+            ) as mock_stream,
+            patch("sap_cloud_sdk.agentgateway._lob.ClientSession") as mock_session,
+        ):
+            mock_http.return_value.__aenter__.return_value = AsyncMock()
+            mock_stream.return_value.__aenter__.return_value = (
+                AsyncMock(),
+                AsyncMock(),
+                None,
+            )
+
+            mock_session_instance = AsyncMock()
+            mock_session_instance.initialize = AsyncMock(side_effect=_hang)
+            mock_session.return_value.__aenter__.return_value = mock_session_instance
+
+            with pytest.raises(TimeoutError):
+                await list_server_tools(
+                    "https://example.com/mcp", "token", "fragment", timeout=0.05
+                )
+
+    @pytest.mark.asyncio
+    async def test_raises_timeout_when_list_tools_hangs(self):
+        """Raise TimeoutError when list_tools() never returns (SSE stream stalled simulation)."""
+        import anyio
+
+        async def _hang(*a, **kw):
+            await anyio.sleep(9999)
+
+        with (
+            patch("sap_cloud_sdk.agentgateway._lob.httpx.AsyncClient") as mock_http,
+            patch(
+                "sap_cloud_sdk.agentgateway._lob.streamable_http_client"
+            ) as mock_stream,
+            patch("sap_cloud_sdk.agentgateway._lob.ClientSession") as mock_session,
+        ):
+            mock_http.return_value.__aenter__.return_value = AsyncMock()
+            mock_stream.return_value.__aenter__.return_value = (
+                AsyncMock(),
+                AsyncMock(),
+                None,
+            )
+
+            mock_init = MagicMock(spec=[])
+            mock_init.server_info = None
+            mock_session_instance = AsyncMock()
+            mock_session_instance.initialize = AsyncMock(return_value=mock_init)
+            mock_session_instance.list_tools = AsyncMock(side_effect=_hang)
+            mock_session.return_value.__aenter__.return_value = mock_session_instance
+
+            with pytest.raises(TimeoutError):
+                await list_server_tools(
+                    "https://example.com/mcp", "token", "fragment", timeout=0.05
+                )
+
 
 # ============================================================
 # Test: call_mcp_tool_lob
diff --git a/uv.lock b/uv.lock
index 19e2ef24..4e740820 100644
--- a/uv.lock
+++ b/uv.lock
@@ -4349,7 +4349,7 @@ wheels = [
 
 [[package]]
 name = "sap-cloud-sdk"
-version = "0.56.0"
+version = "0.56.1"
 source = { editable = "." }
 dependencies = [
     { name = "cryptography" },