--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -7,7 +7,7 @@
 
 from node import *
 from i18n import _
-import errno, util, os, tempfile, context
+import errno, util, os, tempfile, context, heapq
 
 def filemerge(repo, fw, fd, fo, wctx, mctx):
     """perform a 3-way merge in the working directory
@@ -252,6 +252,58 @@ def findcopies(repo, m1, m2, ma, limit):
 
     return copy, diverge
 
+def symmetricdifference(repo, rev1, rev2):
+    """symmetric difference of the sets of ancestors of rev1 and rev2
+    
+    I.e. revisions that are ancestors of rev1 or rev2, but not both.
+    """
+    # basic idea:
+    # - mark rev1 and rev2 with different colors
+    # - walk the graph in topological order with the help of a heap;
+    #   for each revision r:
+    #     - if r has only one color, we want to return it
+    #     - add colors[r] to its parents
+    #
+    # We keep track of the number of revisions in the heap that
+    # we may be interested in.  We stop walking the graph as soon
+    # as this number reaches 0.
+    WHITE = 1
+    BLACK = 2
+    ALLCOLORS = WHITE | BLACK
+    colors = {rev1: WHITE, rev2: BLACK}
+
+    cl = repo.changelog
+
+    visit = [-rev1, -rev2]
+    heapq.heapify(visit)
+    n_wanted = len(visit)
+    ret = []
+
+    while n_wanted:
+        r = -heapq.heappop(visit)
+        wanted = colors[r] != ALLCOLORS
+        n_wanted -= wanted
+        if wanted:
+            ret.append(r)
+
+        for p in cl.parentrevs(r):
+            if p == nullrev:
+                continue
+            if p not in colors:
+                # first time we see p; add it to visit
+                n_wanted += wanted
+                colors[p] = colors[r]
+                heapq.heappush(visit, -p)
+            elif colors[p] != ALLCOLORS and colors[p] != colors[r]:
+                # at first we thought we wanted p, but now
+                # we know we don't really want it
+                n_wanted -= 1
+                colors[p] |= colors[r]
+
+        del colors[r]
+
+    return ret
+
 def manifestmerge(repo, p1, p2, pa, overwrite, partial):
     """
     Merge p1 and p2 with ancestor ma and generate merge action list
@@ -290,7 +342,12 @@ def manifestmerge(repo, p1, p2, pa, over
         action.append((f, m) + args)
 
     if not (backwards or overwrite):
-        copy, diverge = findcopies(repo, m1, m2, ma, pa.rev())
+        rev1 = p1.rev()
+        if rev1 is None:
+            # p1 is a workingctx
+            rev1 = p1.parents()[0].rev()
+        limit = min(symmetricdifference(repo, rev1, p2.rev()))
+        copy, diverge = findcopies(repo, m1, m2, ma, limit)
 
     for of, fl in diverge.items():
         act("divergent renames", "dr", of, fl)

new file mode 100755
--- /dev/null
+++ b/tests/test-issue672
@@ -0,0 +1,35 @@
+#!/bin/sh
+
+# 0-2-4
+#  \ \ \
+#   1-3-5
+#
+# rename in #1, content change in #4.
+
+hg init t
+cd t
+
+touch 1
+touch 2
+hg commit -Am init -d "0 0"  # 0
+
+hg rename 1 1a
+hg commit -m rename -d "0 0" # 1
+
+hg co -C 0
+echo unrelated >> 2
+hg ci -m unrelated1 -d "0 0"  # 2
+
+hg merge --debug 1
+hg ci -m merge1 -d "0 0" # 3
+
+hg co -C 2
+echo hello >> 1
+hg ci -m unrelated2 -d "0 0" # 4
+
+hg co -C 3
+hg merge -y --debug 4
+
+hg co -C 4
+hg merge -y --debug 3
+

new file mode 100644
--- /dev/null
+++ b/tests/test-issue672.out
@@ -0,0 +1,33 @@
+adding 1
+adding 2
+1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+resolving manifests
+ overwrite None partial False
+ ancestor 81f4b099af3d local c64f439569a9+ remote 2f8037f47a5c
+ 1: other deleted -> r
+ 1a: remote created -> g
+removing 1
+getting 1a
+1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+(branch merge, don't forget to commit)
+1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+resolving manifests
+ overwrite None partial False
+ ancestor c64f439569a9 local ac7575e3c052+ remote 746e9549ea96
+ 1a: local moved to 1 -> m
+merging 1a and 1
+my 1a@ac7575e3c052+ other 1@746e9549ea96 ancestor 1@81f4b099af3d
+0 files updated, 1 files merged, 0 files removed, 0 files unresolved
+(branch merge, don't forget to commit)
+1 files updated, 0 files merged, 1 files removed, 0 files unresolved
+resolving manifests
+ overwrite None partial False
+ ancestor c64f439569a9 local 746e9549ea96+ remote ac7575e3c052
+ 1: remote moved to 1a -> m
+copying 1 to 1a
+merging 1 and 1a
+my 1@746e9549ea96+ other 1a@2f8037f47a5c ancestor 1@81f4b099af3d
+removing 1
+0 files updated, 1 files merged, 0 files removed, 0 files unresolved
+(branch merge, don't forget to commit)