diff --git a/Makefile.builder b/Makefile.builder
index 424f563..6007c88 100644
--- a/Makefile.builder
+++ b/Makefile.builder
@@ -1,14 +1,3 @@
 ifeq ($(PACKAGE_SET),dom0)
 RPM_SPEC_FILES := kernel.spec
-else ifeq ($(PACKAGE_SET),vm)
-
-ifdef UPDATE_REPO
-# If DIST_DOM0 defined, copy kernel-devel from there
-ifneq ($(DIST_DOM0),)
-# Include kernel-devel packages in VM repo - dummy spec file
-RPM_SPEC_FILES := kernel-devel.spec
-OUTPUT_DIR = pkgs/$(DIST_DOM0)
-endif
-endif
-
 endif
diff --git a/kernel.spec b/kernel.spec
index b342fd5..db06514 100644
--- a/kernel.spec
+++ b/kernel.spec
@@ -329,7 +329,26 @@ PATH="/sbin:$PATH" dracut --nomdadmconf --nolvmconf \
     --modules "kernel-modules qubes-vm-simple" \
     --conf /dev/null --confdir /var/empty \
     -d "xenblk xen-blkfront cdrom ext4 jbd2 crc16 dm_snapshot" \
-    %buildroot/%vm_install_dir/initramfs %kernelrelease
+    %buildroot/%vm_install_dir/initramfs %kernelrelease || exit 1
+
+# workaround for buggy dracut-044 in Fedora 25
+# https://bugzilla.redhat.com/show_bug.cgi?id=1431317
+# https://github.com/dracutdevs/dracut/issues/194
+modules_dep=$(lsinitrd "%buildroot/%vm_install_dir/initramfs" \
+    "usr/lib/modules/%kernelrelease/modules.dep")
+if [ -z "$modules_dep" ]; then
+    tmpdir=$(mktemp -d)
+    zcat "%buildroot/%vm_install_dir/initramfs" | cpio -imd -D "$tmpdir" || exit 1
+    mv "$tmpdir"/%buildroot/lib/modules/%kernelrelease/kernel \
+        "$tmpdir"/lib/modules/%kernelrelease/ || exit 1
+    depmod -F %buildroot/boot/System.map-%kernelrelease \
+        -b "$tmpdir" -a %kernelrelease || exit 1
+    pushd "$tmpdir"
+    find . -print0 | sort -z \
+      | cpio --null -R 0:0 -H newc -o --quiet \
+      | gzip > %buildroot/%vm_install_dir/initramfs || exit 1
+    popd
+fi
 
 cp -p arch/x86/boot/bzImage %buildroot/%vm_install_dir/vmlinuz
 
@@ -339,6 +358,11 @@ cp -a %buildroot/lib/modules/%kernelrelease %buildroot%vm_install_dir/modules/
 mkdir -p %buildroot%vm_install_dir/modules/firmware
 cp -a %buildroot/lib/firmware/%kernelrelease %buildroot%vm_install_dir/modules/firmware/
 
+# Include kernel headers for Qubes VM in "/lib/modules" - so kernel-devel
+# package will be unnecessary there, regardless of distribution
+rm -f %buildroot%vm_install_dir/modules/%kernelrelease/build
+cp -a %buildroot/%src_install_dir %buildroot%vm_install_dir/modules/%kernelrelease/build
+
 # remove files that will be auto generated by depmod at rpm -i time
 for i in alias alias.bin ccwmap dep dep.bin ieee1394map inputmap isapnpmap ofmap pcimap seriomap symbols symbols.bin usbmap
 do
@@ -431,12 +455,14 @@ Qubes domU kernel.
 %post qubes-vm
 
 mkdir /tmp/qubes-modules-%kernelrelease
-truncate -s 400M /tmp/qubes-modules-%kernelrelease.img
+truncate -s 500M /tmp/qubes-modules-%kernelrelease.img
 mkfs -t ext3 -F /tmp/qubes-modules-%kernelrelease.img > /dev/null
 mount /tmp/qubes-modules-%kernelrelease.img /tmp/qubes-modules-%kernelrelease -o loop
 cp -a -t /tmp/qubes-modules-%kernelrelease %vm_install_dir/modules/%kernelrelease
 mkdir /tmp/qubes-modules-%kernelrelease/firmware
 cp -a -t /tmp/qubes-modules-%kernelrelease/firmware %vm_install_dir/modules/firmware/%kernelrelease
+cp %vm_install_dir/vmlinuz /tmp/qubes-modules-%kernelrelease/
+cp %vm_install_dir/initramfs /tmp/qubes-modules-%kernelrelease/
 umount /tmp/qubes-modules-%kernelrelease
 rmdir /tmp/qubes-modules-%kernelrelease
 mv /tmp/qubes-modules-%kernelrelease.img %vm_install_dir/modules.img
diff --git a/rel b/rel
index b6a7d89..98d9bcb 100644
--- a/rel
+++ b/rel
@@ -1 +1 @@
-16
+17