You most likely need to update the bootloader. Download the Photon bootloader here:
Then flash it in listening mode (blinking dark blue):
particle flash --serial bootloader-0.7.0-photon.bin
In versions prior to 0.7.0 the bootloader is embedded in the system firmware. In 0.7.0 and later, there is not enough room, so it’s a separate download, which is done by safe mode healer over-the-air usually. However, if you have a Photon that is not set up for Wi-Fi yet or otherwise unable to connect to the cloud, it won’t be able to get this update and you’ll go into safe mode instead.
Note that you must use --serial mode, not --usb mode, as the bootloader cannot be updated in DFU mode.
In your setup steps above, the bootloader should be upgraded after system-part2.