diff --git a/Makefile b/Makefile
index de3e9f38ec..23bbb90683 100644
--- a/Makefile
+++ b/Makefile
@@ -723,7 +723,8 @@ $(DIFF_OBJS): diffcore.h
 $(LIB_FILE): $(LIB_OBJS)
 	rm -f $@ && $(AR) rcs $@ $(LIB_OBJS)
 
-XDIFF_OBJS=xdiff/xdiffi.o xdiff/xprepare.o xdiff/xutils.o xdiff/xemit.o
+XDIFF_OBJS=xdiff/xdiffi.o xdiff/xprepare.o xdiff/xutils.o xdiff/xemit.o \
+	xdiff/xmerge.o
 $(XDIFF_OBJS): xdiff/xinclude.h xdiff/xmacros.h xdiff/xdiff.h xdiff/xtypes.h \
 	xdiff/xutils.h xdiff/xprepare.h xdiff/xdiffi.h xdiff/xemit.h
 
diff --git a/xdiff/xdiff.h b/xdiff/xdiff.h
index c9f817818a..fa409d5234 100644
--- a/xdiff/xdiff.h
+++ b/xdiff/xdiff.h
@@ -49,6 +49,9 @@ extern "C" {
 #define XDL_BDOP_CPY 2
 #define XDL_BDOP_INSB 3
 
+#define XDL_MERGE_MINIMAL 0
+#define XDL_MERGE_EAGER 1
+#define XDL_MERGE_ZEALOUS 2
 
 typedef struct s_mmfile {
 	char *ptr;
@@ -90,6 +93,10 @@ long xdl_mmfile_size(mmfile_t *mmf);
 int xdl_diff(mmfile_t *mf1, mmfile_t *mf2, xpparam_t const *xpp,
 	     xdemitconf_t const *xecfg, xdemitcb_t *ecb);
 
+int xdl_merge(mmfile_t *orig, mmfile_t *mf1, const char *name1,
+		mmfile_t *mf2, const char *name2,
+		xpparam_t const *xpp, int level, mmbuffer_t *result);
+
 #ifdef __cplusplus
 }
 #endif /* #ifdef __cplusplus */
diff --git a/xdiff/xdiffi.c b/xdiff/xdiffi.c
index d76e76a0e6..9aeebc473b 100644
--- a/xdiff/xdiffi.c
+++ b/xdiff/xdiffi.c
@@ -45,7 +45,6 @@ static long xdl_split(unsigned long const *ha1, long off1, long lim1,
 		      long *kvdf, long *kvdb, int need_min, xdpsplit_t *spl,
 		      xdalgoenv_t *xenv);
 static xdchange_t *xdl_add_change(xdchange_t *xscr, long i1, long i2, long chg1, long chg2);
-static int xdl_change_compact(xdfile_t *xdf, xdfile_t *xdfo, long flags);
 
 
 
@@ -397,7 +396,7 @@ static xdchange_t *xdl_add_change(xdchange_t *xscr, long i1, long i2, long chg1,
 }
 
 
-static int xdl_change_compact(xdfile_t *xdf, xdfile_t *xdfo, long flags) {
+int xdl_change_compact(xdfile_t *xdf, xdfile_t *xdfo, long flags) {
 	long ix, ixo, ixs, ixref, grpsiz, nrec = xdf->nrec;
 	char *rchg = xdf->rchg, *rchgo = xdfo->rchg;
 	xrecord_t **recs = xdf->recs;
diff --git a/xdiff/xdiffi.h b/xdiff/xdiffi.h
index d3b72716b5..472aeaecfa 100644
--- a/xdiff/xdiffi.h
+++ b/xdiff/xdiffi.h
@@ -50,6 +50,7 @@ int xdl_recs_cmp(diffdata_t *dd1, long off1, long lim1,
 		 long *kvdf, long *kvdb, int need_min, xdalgoenv_t *xenv);
 int xdl_do_diff(mmfile_t *mf1, mmfile_t *mf2, xpparam_t const *xpp,
 		xdfenv_t *xe);
+int xdl_change_compact(xdfile_t *xdf, xdfile_t *xdfo, long flags);
 int xdl_build_script(xdfenv_t *xe, xdchange_t **xscr);
 void xdl_free_script(xdchange_t *xscr);
 int xdl_emit_diff(xdfenv_t *xe, xdchange_t *xscr, xdemitcb_t *ecb,
diff --git a/xdiff/xmerge.c b/xdiff/xmerge.c
new file mode 100644
index 0000000000..7b85aa5906
--- /dev/null
+++ b/xdiff/xmerge.c
@@ -0,0 +1,433 @@
+/*
+ *  LibXDiff by Davide Libenzi ( File Differential Library )
+ *  Copyright (C) 2003-2006 Davide Libenzi, Johannes E. Schindelin
+ *
+ *  This library is free software; you can redistribute it and/or
+ *  modify it under the terms of the GNU Lesser General Public
+ *  License as published by the Free Software Foundation; either
+ *  version 2.1 of the License, or (at your option) any later version.
+ *
+ *  This library is distributed in the hope that it will be useful,
+ *  but WITHOUT ANY WARRANTY; without even the implied warranty of
+ *  MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the GNU
+ *  Lesser General Public License for more details.
+ *
+ *  You should have received a copy of the GNU Lesser General Public
+ *  License along with this library; if not, write to the Free Software
+ *  Foundation, Inc., 59 Temple Place, Suite 330, Boston, MA  02111-1307  USA
+ *
+ *  Davide Libenzi <davidel@xmailserver.org>
+ *
+ */
+
+#include "xinclude.h"
+
+typedef struct s_xdmerge {
+	struct s_xdmerge *next;
+	/*
+	 * 0 = conflict,
+	 * 1 = no conflict, take first,
+	 * 2 = no conflict, take second.
+	 */
+	int mode;
+	long i1, i2;
+	long chg1, chg2;
+} xdmerge_t;
+
+static int xdl_append_merge(xdmerge_t **merge, int mode,
+		long i1, long chg1, long i2, long chg2)
+{
+	xdmerge_t *m = *merge;
+	if (m && mode == m->mode &&
+			(i1 == m->i1 + m->chg1 || i2 == m->i2 + m->chg2)) {
+		m->chg1 = i1 + chg1 - m->i1;
+		m->chg2 = i2 + chg2 - m->i2;
+	} else {
+		m = xdl_malloc(sizeof(xdmerge_t));
+		if (!m)
+			return -1;
+		m->next = NULL;
+		m->mode = mode;
+		m->i1 = i1;
+		m->chg1 = chg1;
+		m->i2 = i2;
+		m->chg2 = chg2;
+		if (*merge)
+			(*merge)->next = m;
+		*merge = m;
+	}
+	return 0;
+}
+
+static int xdl_cleanup_merge(xdmerge_t *c)
+{
+	int count = 0;
+	xdmerge_t *next_c;
+
+	/* were there conflicts? */
+	for (; c; c = next_c) {
+		if (c->mode == 0)
+			count++;
+		next_c = c->next;
+		free(c);
+	}
+	return count;
+}
+
+static int xdl_merge_cmp_lines(xdfenv_t *xe1, int i1, xdfenv_t *xe2, int i2,
+		int line_count, long flags)
+{
+	int i;
+	xrecord_t **rec1 = xe1->xdf2.recs + i1;
+	xrecord_t **rec2 = xe2->xdf2.recs + i2;
+
+	for (i = 0; i < line_count; i++) {
+		int result = xdl_recmatch(rec1[i]->ptr, rec1[i]->size,
+			rec2[i]->ptr, rec2[i]->size, flags);
+		if (!result)
+			return -1;
+	}
+	return 0;
+}
+
+static int xdl_recs_copy(xdfenv_t *xe, int i, int count, int add_nl, char *dest)
+{
+	xrecord_t **recs = xe->xdf2.recs + i;
+	int size = 0;
+
+	if (count < 1)
+		return 0;
+
+	for (i = 0; i < count; size += recs[i++]->size)
+		if (dest)
+			memcpy(dest + size, recs[i]->ptr, recs[i]->size);
+	if (add_nl) {
+		i = recs[count - 1]->size;
+		if (i == 0 || recs[count - 1]->ptr[i - 1] != '\n') {
+			if (dest)
+				dest[size] = '\n';
+			size++;
+		}
+	}
+	return size;
+}
+
+static int xdl_fill_merge_buffer(xdfenv_t *xe1, const char *name1,
+		xdfenv_t *xe2, const char *name2, xdmerge_t *m, char *dest)
+{
+	const int marker_size = 7;
+	int marker1_size = (name1 ? strlen(name1) + 1 : 0);
+	int marker2_size = (name2 ? strlen(name2) + 1 : 0);
+	int conflict_marker_size = 3 * (marker_size + 1)
+		+ marker1_size + marker2_size;
+	int size, i1, j;
+
+	for (size = i1 = 0; m; m = m->next) {
+		if (m->mode == 0) {
+			size += xdl_recs_copy(xe1, i1, m->i1 - i1, 0,
+					dest ? dest + size : NULL);
+			if (dest) {
+				for (j = 0; j < marker_size; j++)
+					dest[size++] = '<';
+				if (marker1_size) {
+					dest[size] = ' ';
+					memcpy(dest + size + 1, name1,
+							marker1_size - 1);
+					size += marker1_size;
+				}
+				dest[size++] = '\n';
+			} else
+				size += conflict_marker_size;
+			size += xdl_recs_copy(xe1, m->i1, m->chg1, 1,
+					dest ? dest + size : NULL);
+			if (dest) {
+				for (j = 0; j < marker_size; j++)
+					dest[size++] = '=';
+				dest[size++] = '\n';
+			}
+			size += xdl_recs_copy(xe2, m->i2, m->chg2, 1,
+					dest ? dest + size : NULL);
+			if (dest) {
+				for (j = 0; j < marker_size; j++)
+					dest[size++] = '>';
+				if (marker2_size) {
+					dest[size] = ' ';
+					memcpy(dest + size + 1, name2,
+							marker2_size - 1);
+					size += marker2_size;
+				}
+				dest[size++] = '\n';
+			}
+		} else if (m->mode == 1)
+			size += xdl_recs_copy(xe1, i1, m->i1 + m->chg1 - i1, 0,
+					dest ? dest + size : NULL);
+		else if (m->mode == 2)
+			size += xdl_recs_copy(xe2, m->i2 - m->i1 + i1,
+					m->i1 + m->chg2 - i1, 0,
+					dest ? dest + size : NULL);
+		i1 = m->i1 + m->chg1;
+	}
+	size += xdl_recs_copy(xe1, i1, xe1->xdf2.nrec - i1, 0,
+			dest ? dest + size : NULL);
+	return size;
+}
+
+/*
+ * Sometimes, changes are not quite identical, but differ in only a few
+ * lines. Try hard to show only these few lines as conflicting.
+ */
+static int xdl_refine_conflicts(xdfenv_t *xe1, xdfenv_t *xe2, xdmerge_t *m,
+		xpparam_t const *xpp)
+{
+	for (; m; m = m->next) {
+		mmfile_t t1, t2;
+		xdfenv_t xe;
+		xdchange_t *xscr, *x;
+		int i1 = m->i1, i2 = m->i2;
+
+		/* let's handle just the conflicts */
+		if (m->mode)
+			continue;
+
+		/*
+		 * This probably does not work outside git, since
+		 * we have a very simple mmfile structure.
+		 */
+		t1.ptr = (char *)xe1->xdf2.recs[m->i1]->ptr;
+		t1.size = xe1->xdf2.recs[m->i1 + m->chg1]->ptr
+			+ xe1->xdf2.recs[m->i1 + m->chg1]->size - t1.ptr;
+		t2.ptr = (char *)xe2->xdf2.recs[m->i1]->ptr;
+		t2.size = xe2->xdf2.recs[m->i1 + m->chg1]->ptr
+			+ xe2->xdf2.recs[m->i1 + m->chg1]->size - t2.ptr;
+		if (xdl_do_diff(&t1, &t2, xpp, &xe) < 0)
+			return -1;
+		if (xdl_change_compact(&xe.xdf1, &xe.xdf2, xpp->flags) < 0 ||
+		    xdl_change_compact(&xe.xdf2, &xe.xdf1, xpp->flags) < 0 ||
+		    xdl_build_script(&xe, &xscr) < 0) {
+			xdl_free_env(&xe);
+			return -1;
+		}
+		if (!xscr) {
+			/* If this happens, it's a bug. */
+			xdl_free_env(&xe);
+			return -2;
+		}
+		x = xscr;
+		m->i1 = xscr->i1 + i1;
+		m->chg1 = xscr->chg1;
+		m->i2 = xscr->i2 + i2;
+		m->chg2 = xscr->chg2;
+		while (xscr->next) {
+			xdmerge_t *m2 = xdl_malloc(sizeof(xdmerge_t));
+			if (!m2) {
+				xdl_free_env(&xe);
+				xdl_free_script(x);
+				return -1;
+			}
+			xscr = xscr->next;
+			m2->next = m->next;
+			m->next = m2;
+			m = m2;
+			m->mode = 0;
+			m->i1 = xscr->i1 + i1;
+			m->chg1 = xscr->chg1;
+			m->i2 = xscr->i2 + i2;
+			m->chg2 = xscr->chg2;
+		}
+		xdl_free_env(&xe);
+		xdl_free_script(x);
+	}
+	return 0;
+}
+
+/*
+ * level == 0: mark all overlapping changes as conflict
+ * level == 1: mark overlapping changes as conflict only if not identical
+ * level == 2: analyze non-identical changes for minimal conflict set
+ *
+ * returns < 0 on error, == 0 for no conflicts, else number of conflicts
+ */
+static int xdl_do_merge(xdfenv_t *xe1, xdchange_t *xscr1, const char *name1,
+		xdfenv_t *xe2, xdchange_t *xscr2, const char *name2,
+		int level, xpparam_t const *xpp, mmbuffer_t *result) {
+	xdmerge_t *changes, *c;
+	int i1, i2, chg1, chg2;
+
+	c = changes = NULL;
+
+	while (xscr1 && xscr2) {
+		if (!changes)
+			changes = c;
+		if (xscr1->i1 + xscr1->chg1 < xscr2->i1) {
+			i1 = xscr1->i2;
+			i2 = xscr2->i2 - xscr2->i1 + xscr1->i1;
+			chg1 = xscr1->chg2;
+			chg2 = xscr1->chg1;
+			if (xdl_append_merge(&c, 1, i1, chg1, i2, chg2)) {
+				xdl_cleanup_merge(changes);
+				return -1;
+			}
+			xscr1 = xscr1->next;
+			continue;
+		}
+		if (xscr2->i1 + xscr2->chg1 < xscr1->i1) {
+			i1 = xscr1->i2 - xscr1->i1 + xscr2->i1;
+			i2 = xscr2->i2;
+			chg1 = xscr2->chg1;
+			chg2 = xscr2->chg2;
+			if (xdl_append_merge(&c, 2, i1, chg1, i2, chg2)) {
+				xdl_cleanup_merge(changes);
+				return -1;
+			}
+			xscr2 = xscr2->next;
+			continue;
+		}
+		if (level < 1 || xscr1->i1 != xscr2->i1 ||
+				xscr1->chg1 != xscr2->chg1 ||
+				xscr1->chg2 != xscr2->chg2 ||
+				xdl_merge_cmp_lines(xe1, xscr1->i2,
+					xe2, xscr2->i2,
+					xscr1->chg2, xpp->flags)) {
+			/* conflict */
+			int off = xscr1->i1 - xscr2->i1;
+			int ffo = off + xscr1->chg1 - xscr2->chg1;
+
+			i1 = xscr1->i2;
+			i2 = xscr2->i2;
+			if (off > 0)
+				i1 -= off;
+			else
+				i2 += off;
+			chg1 = xscr1->i2 + xscr1->chg2 - i1;
+			chg2 = xscr2->i2 + xscr2->chg2 - i2;
+			if (ffo > 0)
+				chg2 += ffo;
+			else
+				chg1 -= ffo;
+			if (xdl_append_merge(&c, 0, i1, chg1, i2, chg2)) {
+				xdl_cleanup_merge(changes);
+				return -1;
+			}
+		}
+
+		i1 = xscr1->i1 + xscr1->chg1;
+		i2 = xscr2->i1 + xscr2->chg1;
+
+		if (i1 > i2) {
+			xscr1->chg1 -= i1 - i2;
+			xscr1->i1 = i2;
+			xscr1->i2 += xscr1->chg2;
+			xscr1->chg2 = 0;
+			xscr1 = xscr1->next;
+		} else if (i2 > i1) {
+			xscr2->chg1 -= i2 - i1;
+			xscr2->i1 = i1;
+			xscr2->i2 += xscr2->chg2;
+			xscr2->chg2 = 0;
+			xscr2 = xscr2->next;
+		} else {
+			xscr1 = xscr1->next;
+			xscr2 = xscr2->next;
+		}
+	}
+	while (xscr1) {
+		if (!changes)
+			changes = c;
+		i1 = xscr1->i2;
+		i2 = xscr1->i1 + xe2->xdf2.nrec - xe2->xdf1.nrec;
+		chg1 = xscr1->chg2;
+		chg2 = xscr1->chg1;
+		if (xdl_append_merge(&c, 1, i1, chg1, i2, chg2)) {
+			xdl_cleanup_merge(changes);
+			return -1;
+		}
+		xscr1 = xscr1->next;
+	}
+	while (xscr2) {
+		if (!changes)
+			changes = c;
+		i1 = xscr2->i1 + xe1->xdf2.nrec - xe1->xdf1.nrec;
+		i2 = xscr2->i2;
+		chg1 = xscr2->chg1;
+		chg2 = xscr2->chg2;
+		if (xdl_append_merge(&c, 2, i1, chg1, i2, chg2)) {
+			xdl_cleanup_merge(changes);
+			return -1;
+		}
+		xscr2 = xscr2->next;
+	}
+	if (!changes)
+		changes = c;
+	/* refine conflicts */
+	if (level > 1 && xdl_refine_conflicts(xe1, xe2, changes, xpp) < 0) {
+		xdl_cleanup_merge(changes);
+		return -1;
+	}
+	/* output */
+	if (result) {
+		int size = xdl_fill_merge_buffer(xe1, name1, xe2, name2,
+			changes, NULL);
+		result->ptr = xdl_malloc(size);
+		if (!result->ptr) {
+			xdl_cleanup_merge(changes);
+			return -1;
+		}
+		result->size = size;
+		xdl_fill_merge_buffer(xe1, name1, xe2, name2, changes,
+				result->ptr);
+	}
+	return xdl_cleanup_merge(changes);
+}
+
+int xdl_merge(mmfile_t *orig, mmfile_t *mf1, const char *name1,
+		mmfile_t *mf2, const char *name2,
+		xpparam_t const *xpp, int level, mmbuffer_t *result) {
+	xdchange_t *xscr1, *xscr2;
+	xdfenv_t xe1, xe2;
+
+	result->ptr = NULL;
+	result->size = 0;
+
+	if (xdl_do_diff(orig, mf1, xpp, &xe1) < 0 ||
+			xdl_do_diff(orig, mf2, xpp, &xe2) < 0) {
+		return -1;
+	}
+	if (xdl_change_compact(&xe1.xdf1, &xe1.xdf2, xpp->flags) < 0 ||
+	    xdl_change_compact(&xe1.xdf2, &xe1.xdf1, xpp->flags) < 0 ||
+	    xdl_build_script(&xe1, &xscr1) < 0) {
+		xdl_free_env(&xe1);
+		return -1;
+	}
+	if (xdl_change_compact(&xe2.xdf1, &xe2.xdf2, xpp->flags) < 0 ||
+	    xdl_change_compact(&xe2.xdf2, &xe2.xdf1, xpp->flags) < 0 ||
+	    xdl_build_script(&xe2, &xscr2) < 0) {
+		xdl_free_env(&xe2);
+		return -1;
+	}
+	if (xscr1 || xscr2) {
+		if (!xscr1) {
+			result->ptr = xdl_malloc(mf2->size);
+			memcpy(result->ptr, mf2->ptr, mf2->size);
+			result->size = mf2->size;
+		} else if (!xscr2) {
+			result->ptr = xdl_malloc(mf1->size);
+			memcpy(result->ptr, mf1->ptr, mf1->size);
+			result->size = mf1->size;
+		} else if (xdl_do_merge(&xe1, xscr1, name1,
+					&xe2, xscr2, name2,
+					level, xpp, result) < 0) {
+			xdl_free_script(xscr1);
+			xdl_free_script(xscr2);
+			xdl_free_env(&xe1);
+			xdl_free_env(&xe2);
+			return -1;
+		}
+		xdl_free_script(xscr1);
+		xdl_free_script(xscr2);
+	}
+	xdl_free_env(&xe1);
+	xdl_free_env(&xe2);
+
+	return 0;
+}
+