diff -r 9926aab3d0b5 -r a84698badf0b mercurial/context.py
--- a/mercurial/context.py	Sun Nov 20 19:14:36 2011 +0100
+++ b/mercurial/context.py	Fri Nov 18 12:04:31 2011 +0100
@@ -7,7 +7,7 @@
 
 from node import nullid, nullrev, short, hex
 from i18n import _
-import ancestor, bdiff, error, util, scmutil, subrepo, patch, encoding
+import ancestor, mdiff, error, util, scmutil, subrepo, patch, encoding
 import match as matchmod
 import os, errno, stat
 
@@ -433,7 +433,7 @@
         return [filectx(self._repo, self._path, fileid=x,
                         filelog=self._filelog) for x in c]
 
-    def annotate(self, follow=False, linenumber=None):
+    def annotate(self, follow=False, linenumber=None, diffopts=None):
         '''returns a list of tuples of (ctx, line) for each line
         in the file, where ctx is the filectx of the node where
         that line was last changed.
@@ -460,8 +460,13 @@
                     without_linenumber)
 
         def pair(parent, child):
-            for a1, a2, b1, b2 in bdiff.blocks(parent[1], child[1]):
-                child[0][b1:b2] = parent[0][a1:a2]
+            blocks = mdiff.allblocks(parent[1], child[1], opts=diffopts,
+                                     refine=True)
+            for (a1, a2, b1, b2), t in blocks:
+                # Changed blocks ('!') or blocks made only of blank lines ('~')
+                # belong to the child.
+                if t == '=':
+                    child[0][b1:b2] = parent[0][a1:a2]
             return child
 
         getlog = util.lrucachefunc(lambda x: self._repo.file(x))