I think the diffing is the “obvious” graph search algorithm between trees, where a “tree” is a list of atoms or trees (think lisp lists).

Basically to diff a tree of n top-level elements against one of m elements, construct a graph where nodes lie on an (n+1)x(m+1) grid. Each node (a,b) corresponds to having looked at a elements of the first and matched them to b elements of the second list. Add edges (a,b)->(a+1,b) for deletion; (a,b)->(a,b+1) for insertion; and (a,b)->(a+1,b+1) for an inner diff (ie basically this graph search problem again). Choose weights to apply to node and now find the shortest path from (0,0) to (n,m).