we had something very similar; BT (Belgian Telecom) was working in the street and unplugged connections in a "box". It was out for a week. Now I know where the box is so if it happens again I'm going straight round there to give the workmen a piece of my mind
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We had the same problem about six months ago, internet working, no dialling tone, but engaged tone when trying to call number.
BT said they couldn't find fault on the line, must be somewhere in the property! Was very odd that an engineer had been up a pole the day it went wrong and also working in the local exchange - turned out to be a fault in the exchange.
Keziah
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BT gave me some strange instructions which included the most important test. Remove lower half cover plate from the main socket (where the line comes into the house). The outer socket plugs into another one inside, so plug the handset into the inner one. If it doesn't work with at least two handsets, or with one that works in some other socket (next-door for example?) let them know as it can't be your wiring.
When I did that, they mentioned a three-day call-out wait and needing to be in for the engineer, but after about a half-hour there was a single beep on the line and it was working again without anyone coming anywhere near the house, so I'm pretty sure they must have messed somehing up at their end of the line and sorted it out as soon as I had convinced them that it was their problem.