update canceling logic for failed subset

python_modules/dagster/dagster/_core/execution/asset_backfill.py

@@ -1284,12 +1284,19 @@ def get_canceling_asset_backfill_iteration_data(
         ),
         asset_graph,
     )
+    # we fetch the failed_subset to get any new assets that have failed and add that to the set of
+    # assets we alerady know failed and their downstreams. However we need to remove any assets in
+    # updated_materialized_subset to account for the case where a run retry successfully
+    # materialized a previlusly failed asset.
+    updated_failed_subset = (
+        asset_backfill_data.failed_and_downstream_subset | failed_subset
+    ) - updated_materialized_subset
     updated_backfill_data = AssetBackfillData(
         target_subset=asset_backfill_data.target_subset,
         latest_storage_id=asset_backfill_data.latest_storage_id,
         requested_runs_for_target_roots=asset_backfill_data.requested_runs_for_target_roots,
         materialized_subset=updated_materialized_subset,
-        failed_and_downstream_subset=failed_subset,
+        failed_and_downstream_subset=updated_failed_subset,
         requested_subset=asset_backfill_data.requested_subset,
         backfill_start_time=TimestampWithTimezone(backfill_start_timestamp, "UTC"),
     )