Index: jruby/test/testException.rb
===================================================================
--- jruby/test/testException.rb	(revision 2591)
+++ jruby/test/testException.rb	(working copy)
@@ -74,4 +74,28 @@
 test_no_exception {
     e = StandardError.new
     e.set_backtrace(nil)
-}
\ No newline at end of file
+}
+
+begin
+  raise 'Something bad'
+rescue
+  begin
+    test_ok(true)
+  rescue
+    test_ok(false)
+  end
+  test_ok($!, 'Global exception ($!) should not be nil')
+  test_ok($!.to_s.eql? 'Something bad', "Global exceptions should be 'Something bad', but is '#{$!}'")
+end
+
+begin
+  raise 'Something bad'
+rescue
+  begin
+    raise 'Something else bad'
+  rescue
+    test_ok(true)
+  end
+  test_ok($!, 'Global exception ($!) should not be nil')
+  test_ok($!.to_s.eql? 'Something bad', "Global exceptions should be 'Something bad', but is '#{$!}'")
+end
\ No newline at end of file
Index: jruby/src/org/jruby/evaluator/EvaluationState.java
===================================================================
--- jruby/src/org/jruby/evaluator/EvaluationState.java	(revision 2591)
+++ jruby/src/org/jruby/evaluator/EvaluationState.java	(working copy)
@@ -1170,6 +1170,8 @@
             case NodeTypes.RESCUENODE: {
                 RescueNode iVisited = (RescueNode)node;
                 RescuedBlock : while (true) {
+                    IRubyObject globalExceptionState = runtime.getGlobalVariables().get("$!");
+                    boolean anotherExceptionRaised = false;
                     try {
                         // Execute rescue block
                         IRubyObject result = evalInternal(context, iVisited.getBodyNode(), self);
@@ -1189,7 +1191,7 @@
                         // falsely set $! to nil and this sets it back to something valid.  This should
                         // get fixed at the same time we address bug #1296484.
                         runtime.getGlobalVariables().set("$!", raisedException);
-
+
                         RescueBodyNode rescueNode = iVisited.getRescueNode();

                         while (rescueNode != null) {
@@ -1213,6 +1215,7 @@
                                         continue RescuedBlock;

                                     } else {
+                                        anotherExceptionRaised = true;
                                         throw je;
                                     }
                                 }
@@ -1225,7 +1228,8 @@
                         throw raiseJump;
                     } finally {
                         // clear exception when handled or retried
-                        runtime.getGlobalVariables().set("$!", runtime.getNil());
+                        if (!anotherExceptionRaised)
+                            runtime.getGlobalVariables().set("$!", globalExceptionState);
                     }
                 }
             }