In this paper a new fault accommodation algorithm based on a multi-level hierarchical architecture is proposed for satellite formation flying missions. This framework introduces a high level (HL) supervisor and two recovery modules: low level fault recovery (LLFR) and formation level fault recovery (FLFR). In the LLFR module, conventional recovery controller (RC) is implemented using fault severity estimation techniques. Due to imprecise fault estimation and the resulting ineffective recovery controller, the HL supervisor alerts violation of error bounds that are imposed by the mission specifications. The FLFR module is activated to compensate for the performance degradation of the faulty satellite by requiring the healthy satellites to allocate additional resources. Consequently, fault is cooperatively recovered by our proposed architecture, and the formation flying mission specifications are satisfied. Simulation results confirm the validity and effectiveness of our analytical work.