static int call_depth = 0;
 static int verbosity = 2;
-static int rename_limit = -1;
+static int diff_rename_limit = -1;
+static int merge_rename_limit = -1;
 static int buffer_output = 1;
 static struct strbuf obuf = STRBUF_INIT;
 
        diff_setup(&opts);
        DIFF_OPT_SET(&opts, RECURSIVE);
        opts.detect_rename = DIFF_DETECT_RENAME;
-       opts.rename_limit = rename_limit;
+       opts.rename_limit = merge_rename_limit >= 0 ? merge_rename_limit :
+                           diff_rename_limit >= 0 ? diff_rename_limit :
+                           500;
+       opts.warn_on_too_large_rename = 1;
        opts.output_format = DIFF_FORMAT_NO_OUTPUT;
        if (diff_setup_done(&opts) < 0)
                die("diff setup failed");
                        die("cannot read object %s '%s'", sha1_to_hex(sha), path);
                if (type != OBJ_BLOB)
                        die("blob expected for %s '%s'", sha1_to_hex(sha), path);
+               if (S_ISREG(mode)) {
+                       struct strbuf strbuf;
+                       strbuf_init(&strbuf, 0);
+                       if (convert_to_working_tree(path, buf, size, &strbuf)) {
+                               free(buf);
+                               size = strbuf.len;
+                               buf = strbuf_detach(&strbuf, NULL);
+                       }
+               }
 
                if (make_room_for_path(path) < 0) {
                        update_wd = 0;
+                       free(buf);
                        goto update_index;
                }
                if (S_ISREG(mode) || (!has_symlinks && S_ISLNK(mode))) {
                } else
                        die("do not know what to do with %06o %s '%s'",
                            mode, sha1_to_hex(sha), path);
+               free(buf);
        }
  update_index:
        if (update_cache)
        return (struct commit *)object;
 }
 
-static int merge_config(const char *var, const char *value)
+static int merge_config(const char *var, const char *value, void *cb)
 {
        if (!strcasecmp(var, "merge.verbosity")) {
                verbosity = git_config_int(var, value);
                return 0;
        }
        if (!strcasecmp(var, "diff.renamelimit")) {
-               rename_limit = git_config_int(var, value);
+               diff_rename_limit = git_config_int(var, value);
+               return 0;
+       }
+       if (!strcasecmp(var, "merge.renamelimit")) {
+               merge_rename_limit = git_config_int(var, value);
                return 0;
        }
-       return git_default_config(var, value);
+       return git_default_config(var, value, cb);
 }
 
 int cmd_merge_recursive(int argc, const char **argv, const char *prefix)
                        subtree_merge = 1;
        }
 
-       git_config(merge_config);
+       git_config(merge_config, NULL);
        if (getenv("GIT_MERGE_VERBOSITY"))
                verbosity = strtol(getenv("GIT_MERGE_VERBOSITY"), NULL, 10);