Ubuntu – How to set the TERM environment variable for the Gnome Terminal Emulator app

You were well advised not to change your startup scripts, specially ~/.bashrc. Any "terminal detection" using current $TERM or $COLORTERM in ~/.profile is merely a guess, and may, as you said, cause trouble when using other terminals (say, Putty or xterm). The terminal emulator is supposed to set $TERM, and this should not be changed from within the shell.

Gnome terminal, AFAIK, does not offer a configuration to change its TERM, but it does allow you to change your startup command, and that's all you need. Here is the trick:

Profile Preferences => Title and Command => Run a custom command instead of my shell

Then use the following command:

env TERM=xterm-256color /bin/bash

Just replace /bin/bash with your preferred shell if it's different. And no, you can't use "$SHELL" in that line for shell auto-detection ;) You have to hard-code it

It has the same reason why almost every webbrowser (FF,IE,Safari,Chrome,...) uses Mozilla in their User Agent String.

The TERM variable set to xterm only means that your terminal is compatible with the xterm terminal (has the same capabilities), so the system can treat it and communicate with it as it would with an xterm. The system has the terminfo database which stores the terminal capabilities for various terminals (/lib/terminfo directory), and in that terminfo database there is no such as gnome-terminal.

For some more info look at this answer or look up the manpages of terminfo or infocmp