🔨 Workaround

Add private SSH key to ssh agent, as suggested in Generating a new SSH key and adding it to the ssh-agent:

ssh-add -K ~/.ssh/id_ed25519

Debugging

If this still does not solve the issue, try connection to that Codespace with SSH, what do you see?

sudo gh cs ssh

Do you have the ~/.ssh/config file that references correct identify file?

Host *
    AddKeysToAgent yes
    UseKeychain yes
    IdentityFile ~/.ssh/id_ed25519

Alternative solution - try disabling extension GUI with the --gui option. This will prevent the terminal GUI from colliding with input dialog:

sudo gh net start --gui false

Want to delete all SSH keys and passphrases?

Keys:

ssh-add -D

Passpharases:

1. Open Keychain Access app.
2. Search for ssh, delete appropriate SSH passphrase entries.