I have a Site template with a bunch of relative links in the Left Navigation. SharePoint seems smart enough to update the child links, however, my parent links are not updating and still point to the original Base Template.

As indicated in the picture, the red line means the link is broken when creating a new site from the template, while the green means they are working. Why does SharePoint update only the child link to point to the new location and how can I fix this (besides using JS)?

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In the site settings of the template, try using a relative URL - i.e. /SiteTemplate/library/folder - not an absolute URL, which would be like https://contoso.sharepoint.com/sitetemplate/library/folder

This works for me

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