This paper will present a practical implementation of ATPG testing and diagnosis in Failure Analysis resulting in a fast and efficient iterative ATPG diagnosis and fault isolation. On this implementation, a compact test HW instead of an ATE is used for cost-effective ATPG testing and characterization capability. The advantages of this implementation are combined with ATPG tools to make it possible to achieve a faster and more efficient implementation of iterative ATPG diagnosis, Dynamic Analysis by Laser Stimulation (DALS) analysis or similar techniques. The requirements needed in order to implement ATPG testing and diagnosis in FA lab will be discussed. Success in determining root cause, especially on the complex analysis cases is determined by the complimentary combination of various fault isolation techniques. Knowledge of the fundamentals of these techniques combined with creative thinking process of the analyst leads to the approaches and solutions that maximize the combined advantages of these techniques.