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Unfortunately, I do not have time to give this more review.

Several thoughts:
- consider making mdiff as private.  that will leave its API
flexible to accomodate future changes
- move the templates to private global variables and work to
improve their indentation so that the html is readable
- inline the code for _escape from sax.  the three replaces
are not worth the interdependency
- the methods work fine with properly formatted input but
crash badly when the newlines have been stripped.  So,
either make the code more flexible or add error handling.
- overall, nice job.