This paper proposes a new gyro and star sensor fault diagnosis architecture that designs two groups of cascade H∞ optimal fault observers for a spacecraft with flexible appendages and schemes a Compensation PD controller to achieve fault tolerant control. The basic idea of the approach is to identify the gyro fault to good effect first and then makes a further diagnosis for the star sensor based on the former. The H∞ optimal fault observer in design has the robustness with respect to flexible uncertainties and diagnosis uncertainties. The Compensation PD controller ensures attitude errors maintained to a small set around the equilibrium point for a long time even though gyro and star sensor faults occur simultaneously. Finally, simulation results demonstrate the effectiveness and feasibility of the proposed control algorithm.