Improve UX for install experience of missing extensions

[tg-msft]

If you install just azure.ai.agents and no other Foundry extensions, run azd ai agent init with vanilla defaults, and then run azd up you'll see the following:

❯ azd up

ERROR: service host 'azure.ai.project' for service 'ai-project' is unsupported

Suggestion: Suggestion: install an extension that provides this host or update azure.yaml to use one of the supported hosts: appservice, containerapp, function, staticwebapp, aks, ai.endpoint

Your project is using host 'azure.ai.project' which is not supported by default.

An extension was found that provides support for this host.
WARNING: You are about to install an extension!
Source: azd
Id: azure.ai.projects
Name: Foundry Projects (Beta)
Description: Manage Microsoft Foundry Project resources from your terminal. (Beta)
? Confirm installation: [Y/n] Yes

 

It's a bad experience when something happening according to plan looks like a failure to users. We should change this to something that's more like:

Extension {name} is required for {feature} but not currently installed. 
   Id: {id}
   Name: {name}
   Source: {source}
   Description: {Description}
WARNING: You are about to install an extension!
? Install extension [name]: [Y/n]

[JeffreyCA]

For a simple repro:

1. Uninstall all extensions: azd ext uninstall --all
2. In an empty directory, create a single azure.yaml file:

   # yaml-language-server: $schema=https://raw.githubusercontent.com/Azure/azure-dev/main/schemas/v1.0/azure.yaml.json
   name: agent-framework-agent-basic-responses
   services:
     ai-project:
       host: azure.ai.project
       deployments:
         - name: gpt-5.4-mini
           model:
             format: OpenAI
             name: gpt-5.4-mini
             version: '2026-03-17'
           sku:
             name: GlobalStandard
             capacity: 10
     agent-framework-agent-basic-responses:
       host: azure.ai.agent
       project: src/agent-framework-agent-basic-responses
       language: python
       codeConfiguration:
         runtime: python_3_13
         entryPoint: main.py
       uses:
         - ai-project
       kind: hosted
       name: agent-framework-agent-basic-responses
       description: A basic Agent Framework agent hosted by Foundry.
       protocols:
         - protocol: responses
           version: 2.0.0
       environmentVariables:
         - name: AZURE_AI_MODEL_DEPLOYMENT_NAME
           value: ${AZURE_AI_MODEL_DEPLOYMENT_NAME}
       container:
         resources:
           cpu: '0.5'
           memory: 1Gi

3. In the directory, run azd up.

---

Also, we should think about how the UX should be when there are multiple missing extensions that need to be installed.

There's currently a bug where azd only prompts for one of the missing extensions, which causes the flow to fail:

[JeffreyCA]

Some other bugs:

• auto-install does not seem to support custom provisioning providers, e.g.

  infra:
    provider: microsoft.foundry

  

• auto-install does not take into account requiredVersions field:

  requiredVersions:
    extensions:
      azure.ai.agents: '>=1.0.0-beta.4'