The applications of healthy monitoring and fault diagnosis's system can enhance the reliability and safety of the whole vehicle, which has significance to detect and isolate fault as early as possible and that tragedy can be avoided. In this paper, pipeline fault simulation analysis and fault diagnosis for LRE is studied as direct-inverse problem. Firstly, the failure model was constituted for pipeline to analysis the necessary condition for fault isolation. Then the conclusion that strategy of fault diagnosis was build by analysis the simulation result based on AMESim. Finally, the fault diagnosis algorithm was validated by test data. The results indicate that the fault diagnosis algorithm can detect fault exactly and effectively. There are no false alarm to normal test data and no false alarm to other components fault. Consequently the fault isolation result could be reached.