Add the following to ~/.hgrc:
[ui]
merge = meld
[merge-tools]
meld.priority = 1
meld.premerge = False
meld.args = $local $other $base
[merge-patterns]
** = meld
When meld opens the local (the working copy version), other (the remove version,
which is being merged into local), and base (common parent of local and other)
versions of the file, edit the middle pane (other), for this is the file in your
repository. The other two are kept in /tmp.
References