A propulsion system for an aircraft includes a core engine that includes a core flow path where a core flow is compressed in a compressor section, communicated to a combustor section, mixed with a hydrogen-based fuel and ignited to generate a gas flow that is expanded through a turbine section. A fuel system is configured to supply a hydrogen based fuel to the combustor through a fuel flow path. A condenser is arranged along the core flow path and configured to extract water from the gas flow. An intercooling system receives a portion of water from the condenser for cooling a portion of the core flow at a first location within the compressor section. Heated water from the intercooling system is exhausted to a second location within the core flow path downstream of the first location.