Unified and side by side diffs were never really meant for diffing documents. If you do go the route of introducing line breaks to improve readability and/or editing, you really need to use a different diffing algorithm. What I've found useful is the Google diff match and patch library.
http://code.google.com/p/google-diff-match-patch/
Its extremely easy to integrate as well. You can see how it handles a markdown diff at:
http://ny.testdrive.gitsense.com/index?#pid=23&cid=27&trail=
Re:Expanding Context in Diffs
by likeclockwork on Monday December 02, 2013 @08:24PM
(#6837894)
git diff --word-diff
Also, won't it mess up diffs for wrapped text? If you add a few words in the middle of a paragraph and then re-wrap the text, won't the contents of every single following line be altered and show up as a diff?