The arrangement of paths (sometimes referred to as their stacking order), as well as path selection is critical when assigning path operations.
In the illustration below, the the circles in the first group were drawn from left to right on the same shape layer with the path operation set to Combine Shapes. In the second grouping, the middle circle was selected and the path operation was changed to Exclude Overlapping Shape. Because path operations only affect paths below the selected path, only the first circle was affected. In the last grouping, the center circle was selected and the Path Operation was also set to Exclude Overlapping Shapes. However, the center circle’s arrangement (stacking order) was then changed by selecting Bring Shape to Front using the Path Arrangement icon in the options bar. By changing it’s path arrangement to the top of the stack, the middle circle now affects all paths below it.
The illustration below is an attempt to show the stacking order of the paths in the above illustration from a different view.