still can't get back the regular indent after the hanging indent section.
Firstly, if you want to stick with your workaround, you should
make the modifications to indentation local.
To do so, just wrap them into a group:
\setuppapersize[A5]
\starttext
\bgroup
\everypar{\hangafter=1\hangindent=1em\relax}
\subject{Section with hanging indent}
Jaynes, Julian. {\os 1990}.
{\em The Origin of Consciousness in the
Breakdown of the Bicameral Mind}. New York City: Houghton Mifflin Company.
Pye, David. {\os 1995}. {\em The Nature and Art of Workmanship}.
London: The Herbert Press.
\everypar{\hangafter=0\relax}
\egroup
\setupindenting[yes,first, 9mm]
\subject{Section with regular identing}
I would expect this line to begin at the margin,
not having an indent \ldots\ and so is the case, but only
if I delete the above {\em Section with hanging indent}.
This next paragraph would be intented.
\stoptext
This way the original indentation behavior should return.
However, may I suggest you use the high-level Context interface
instead?
The inverted indentation can be achieved by combining a couple
ordinary macros (at least as far as the example you gave is
concerned), and the code certainly looks a bit more idiomatic.
I’ll call the environment negindent for “negative indentation”.
\definestartstop [negindent] [
before={%
\startnarrower[left]%
\setupindenting[-\leftskip,yes,first]%
\setuphead[subject][indentnext=yes]%
},
after=\stopnarrower,
]
\setuppapersize[A5]
\starttext
\startnegindent % ····················································%
\subject{Section with hanging indent}
Jaynes, Julian. {\os 1990}.
{\em The Origin of Consciousness in the
Breakdown of the Bicameral Mind}. New York City: Houghton Mifflin Company.
Pye, David. {\os 1995}. {\em The Nature and Art of Workmanship}.
London: The Herbert Press.
\stopnegindent % ·····················································%
\setupindenting[yes, next, 9mm]
\subject{Section with regular identing}
I would expect this line to begin at the margin,
not having an indent \ldots\ and so is the case, but only
if I delete the above {\em Section with hanging indent}.
This next paragraph would be intented.
\stoptext

Update:
In order to make this work with MkII, the indenting has to be
registered in advance:
\defineindentingmethod [negative] {\parindent-\leftskip}
\definestartstop [negindent] [
before={%
\startnarrower[left]%
\setupindenting[yes,first,negative]%
\setuphead[subject][indentnext=yes]%
},
after=\stopnarrower,
]
\everyparin ConTeXt. Use\EveryParinstead. – Aditya Mar 14 '13 at 12:32\everyparversus\EveryPar. – PetaspeedBeaver Mar 25 '13 at 23:06