A third (fourth?) option worth mentioning here is difftastic[0], which uses "structural" diffing (as opposed to line diffing) for more granular diff highlighting.
I see that patdiff also provides word-level diffing. You could instead get that feature with `git diff --word-diff` or Delta (https://github.com/dandavison/delta).
Then the another layer (which can be git, but also can be any other tool, adding custom diff tool to git is very easy) uses that to generate diffs.
There is zero stopping anyone from adding contextual diffs to Git. Just ask it for content of both commits and feed it to the algorithm.
Yes, git underneath stores data as diffs but they are only vaguely related to logical structure of commits
And that's why we call that lower level compression trick "delta", not "diff".
Linky: https://stackoverflow.com/questions/255202/how-do-i-view-git...