Fleeing from assault and entrenchments, 4th Ed.

[Shad]

If you take them cumulatively I think the answer is clearly "you must flee":

• DEM units that fail to rally in an entrenchment may stay in the entrenchment (14.31) but that's an exception and you are directed to look at 14.35 which discusses assaults specifically
  
• DEM units that fail must flee from anyone capable of obtaining a combat result against it, explicitly including Assault (12.12, 14.3, restated by 14.35)
  

Summarized:

• a DEM rally failure means flight if your unit is in danger UNLESS you are in an entrenchment AND NOT under assault
  
• a DEM rally during assault always means exciting the hex UNLESS the hex is surrounded, in which case you're off to Valhalla