P4Merge is a 3-way merge tool which comes with the Perforce VCS. To get it you should download "The Perforce Visual Client". In OS X case you get p4merge and p4v applications, where you need only the first. Install it in Applications and then add to your ~/.hgrc:
[merge-tools] p4.priority = 60 p4.premerge = True p4.executable = /Applications/p4merge.app/Contents/MacOS/p4merge p4.gui = True p4.args = $base $local $other $output p4.binary = False
Adjust priority based on your other merge tools (or just leave it if you have no other merge tools) and path if you're not on OS X.
Previously, this page contained the sentence "It is quite powerful so on OS X (where KDiff3 requires running X11) is likely the best available tool (TODO: compare with DiffMerge)." But KDiff3 does not need X11 and has not for years (given that the QT library has a native Aqua version).
I am still trying P4Merge, but I can say that KDiff3 is very good, open source, character-level diff capable, and my current favourite.