When the first line(s) in a change are new/added, and subsequent lines are changed, Vim marks the first lines as changed up the number of lines occupied by the original lefthand file, and the subsequent lines as new. In reality, the first line is new, and the second line is changed. Vim does not correctly recognize the similar/same line. Is there a way resolve this?

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Since Vim only parses a diff, it's not Vim's fault, but rather caused by the diff algorithm used. You can check, if my VimDiff Enhanced Plugin can create a better Diff by using, e.g., the patience diff algorithm.

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