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Under Gnome's GDM login manager (gdm3), xmouse will stop working if you log out of your desktop environment (e.g., Gnome) or window manager (e.g., i3wm) and back in again, despite an apparently successful connection being reported.
A quick workaround without rebooting and waiting for your system to start up again is to first close all running programs, then run sudo systemctl restart gdm.service (repeat: close all running programs first before running this!).
After that, xmouse should immediately start to work again without any further interaction.