diff -rup vim73.orig/src/diff.c vim73/src/diff.c
--- vim73.orig/src/diff.c	2010-07-31 15:35:21.000000000 +0200
+++ vim73/src/diff.c	2010-11-21 06:17:00.897968023 +0100
@@ -42,7 +42,7 @@ static void diff_check_unchanged __ARGS(
 static int diff_check_sanity __ARGS((tabpage_T *tp, diff_T *dp));
 static void diff_redraw __ARGS((int dofold));
 static int diff_write __ARGS((buf_T *buf, char_u *fname));
-static void diff_file __ARGS((char_u *tmp_orig, char_u *tmp_new, char_u *tmp_diff));
+static int diff_file __ARGS((char_u *tmp_orig, char_u *tmp_new, char_u *tmp_diff));
 static int diff_equal_entry __ARGS((diff_T *dp, int idx1, int idx2));
 static int diff_cmp __ARGS((char_u *s1, char_u *s2));
 #ifdef FEAT_FOLDING
@@ -664,6 +664,7 @@ ex_diffupdate(eap)
     char_u	*tmp_diff;
     FILE	*fd;
     int		ok;
+    int		retval = 0;
     int		io_error = FALSE;
 
     /* Delete all diffblocks. */
@@ -716,7 +717,7 @@ ex_diffupdate(eap)
 		if (fwrite("line2\n", (size_t)6, (size_t)1, fd) != 1)
 		    io_error = TRUE;
 		fclose(fd);
-		diff_file(tmp_orig, tmp_new, tmp_diff);
+		retval = diff_file(tmp_orig, tmp_new, tmp_diff);
 		fd = mch_fopen((char *)tmp_diff, "r");
 		if (fd == NULL)
 		    io_error = TRUE;
@@ -762,6 +763,12 @@ ex_diffupdate(eap)
 	}
 #endif
 
+	/* diff returned an error */
+	if (retval == 2) {
+	    ok = FALSE;
+	    break;
+	}
+
 	/* If we checked if "-a" works already, break here. */
 	if (diff_a_works != MAYBE)
 	    break;
@@ -796,10 +803,13 @@ ex_diffupdate(eap)
 	    continue;
 	if (diff_write(buf, tmp_new) == FAIL)
 	    continue;
-	diff_file(tmp_orig, tmp_new, tmp_diff);
-
-	/* Read the diff output and add each entry to the diff list. */
-	diff_read(idx_orig, idx_new, tmp_diff);
+	retval = diff_file(tmp_orig, tmp_new, tmp_diff);
+	if(retval == 2)
+	    EMSG(_("E97: Cannot create diffs"));
+	else {
+	    /* Read the diff output and add each entry to the diff list. */
+	    diff_read(idx_orig, idx_new, tmp_diff);
+	}
 	mch_remove(tmp_diff);
 	mch_remove(tmp_new);
     }
@@ -819,13 +829,14 @@ theend:
 /*
  * Make a diff between files "tmp_orig" and "tmp_new", results in "tmp_diff".
  */
-    static void
+    static int
 diff_file(tmp_orig, tmp_new, tmp_diff)
     char_u	*tmp_orig;
     char_u	*tmp_new;
     char_u	*tmp_diff;
 {
     char_u	*cmd;
+    int		retval=0;
     size_t	len;
 
 #ifdef FEAT_EVAL
@@ -861,13 +872,14 @@ diff_file(tmp_orig, tmp_new, tmp_diff)
 #ifdef FEAT_AUTOCMD
 	    block_autocmds();	/* Avoid ShellCmdPost stuff */
 #endif
-	    (void)call_shell(cmd, SHELL_FILTER|SHELL_SILENT|SHELL_DOOUT);
+	    retval = call_shell(cmd, SHELL_FILTER|SHELL_SILENT|SHELL_DOOUT);
 #ifdef FEAT_AUTOCMD
 	    unblock_autocmds();
 #endif
 	    vim_free(cmd);
 	}
     }
+    return retval;
 }
 
 /*