What does ‘patch unexpectedly ends in middle of line’ mean

You don't need patch for this; it's for extracting changes and sending them on without the unchanged part of the file.

The tool for merging two versions of a file is merge, but as @vonbrand wrote, you need the "base" file from which your two versions diverged. To do a merge without it, use diff like this:

diff -DVERSION1 file1.xml file2.xml > merged.xml

It will enclose each set of changes in C-style #ifdef/#ifndef "preprocessor" commands, like this:

#ifdef VERSION1
<stuff added to file1.xml>
#endif
...
#ifndef VERSION1
<stuff added to file2.xml>
#endif

If a line or region differs between the two files, you'll get a "conflict", which looks like this:

#ifndef VERSION1
<version 1>
#else /* VERSION1 */
<version 2>
#endif /* VERSION1 */

So save the output in a file, and open it in an editor. Search for any places where #else comes up, and resolve them manually. Then save the file and run it through grep -v to get rid of the remaining #if(n)def and #endif lines:

grep -v '^#if' merged.xml | grep -v '^#endif' > clean.xml

In the future, save the original version of the file. merge can give you much better results with the help of the extra information. (But be careful: merge edits one of the files in-place, unless you use -p. Read the manual).

Git 2.9 was released earlier this year which included the experimental flag --compaction-heuristic on the git diff command:

In 2.9, Git's diff engine learned a new heuristic: it tries to keep hunk boundaries at blank lines, shifting the hunk "up" whenever the bottom of the hunk matches the bottom of the preceding context, until we hit a blank line.

I don't think GitHub has it enabled for diffs on the web UI for Pull Requests and comparisons, but you can do it locally. I'd recommend using it in conjunction with --word-diff if you need that level of granularity.

More details available on the GitHub blog: https://github.com/blog/2188-git-2-9-has-been-released