diff --git a/core/org.eclipse.cdt.core/parser/ChangeLog b/core/org.eclipse.cdt.core/parser/ChangeLog
index 2e26739f780..1c449ce066a 100644
--- a/core/org.eclipse.cdt.core/parser/ChangeLog
+++ b/core/org.eclipse.cdt.core/parser/ChangeLog
@@ -1,3 +1,6 @@
+2003-07-28 John Camelon
+	Fixed Bug 40730 : Parser is not searching the include path for #include"<name>" 
+
 2003-07-28 Victor Mozgin
 	Fixed PR 39537 : Parser fails if template parameters contain '>' or '<'  characters.
 
diff --git a/core/org.eclipse.cdt.core/parser/org/eclipse/cdt/internal/core/parser/Scanner.java b/core/org.eclipse.cdt.core/parser/org/eclipse/cdt/internal/core/parser/Scanner.java
index b1f4e5f9ef1..c2999cec0c7 100644
--- a/core/org.eclipse.cdt.core/parser/org/eclipse/cdt/internal/core/parser/Scanner.java
+++ b/core/org.eclipse.cdt.core/parser/org/eclipse/cdt/internal/core/parser/Scanner.java
@@ -322,10 +322,15 @@ public class Scanner implements IScanner {
 					inclusionReader =
 						new FileReader(includeFile);
 				} catch (FileNotFoundException fnf) {
-					if (throwExceptionOnInclusionNotFound)
-						throw new ScannerException("Cannot find inclusion " + fileName);	
+					// the spec says that if finding in the local directory fails, search the include paths
+					handleInclusion( fileName, true, nameOffset, beginOffset, endOffset );
 				}
 			}
+			else
+			{
+				// the spec says that if finding in the local directory fails, search the include paths
+				handleInclusion( fileName, true, nameOffset, beginOffset, endOffset );
+			}
 		}
 
 		if (throwExceptionOnInclusionNotFound && inclusionReader == null )