Check sequences is strongly equal.

src/vs/editor/common/diff/defaultLinesDiffComputer/algorithms/diffAlgorithm.ts

@@ -155,6 +155,8 @@ export interface ISequence {
 	 * It prevents shifting to less matching lines.
 	 */
 	isStronglyEqual(offset1: number, offset2: number): boolean;
+
+	getLineValue(offset: number): string;
 }
 
 export interface ITimeout {

src/vs/editor/common/diff/defaultLinesDiffComputer/heuristicSequenceOptimizations.ts

@@ -48,9 +48,30 @@ function joinSequenceDiffsByShifting(sequence1: ISequence, sequence2: ISequence,
 			const length = cur.seq1Range.start - prevResult.seq1Range.endExclusive;
 			let d;
 			for (d = 1; d <= length; d++) {
+				const seq1OffsetS = cur.seq1Range.start - d;
+				const seq1OffsetE = cur.seq1Range.endExclusive - d;
+				const seq2OffsetS = cur.seq2Range.start - d;
+				const seq2OffsetE = cur.seq2Range.endExclusive - d;
 				if (
-					sequence1.getElement(cur.seq1Range.start - d) !== sequence1.getElement(cur.seq1Range.endExclusive - d) ||
-					sequence2.getElement(cur.seq2Range.start - d) !== sequence2.getElement(cur.seq2Range.endExclusive - d)) {
+					sequence1.getElement(seq1OffsetS) !== sequence1.getElement(seq1OffsetE) ||
+					sequence2.getElement(seq2OffsetS) !== sequence2.getElement(seq2OffsetE) ||
+					/**
+					 * fixes issues like this:
+					 * seq1:                  seq2:
+					 *      [    pass]=============[    pass]
+					 * 			[.]  ^
+					 * 			[.]  |
+					 *      [.]  |
+					 * 			[  pass]
+					 *
+					 *  1. The start and end elements of seq1 are equal.
+					 *  2. The start item of seq1 and seq2 need to be strongly equal.
+					 *
+					 * Satisfying the above will skip optimization.
+					 */
+					((!sequence1.isStronglyEqual(seq1OffsetS, seq1OffsetE) ||
+						!sequence2.isStronglyEqual(seq2OffsetS, seq2OffsetE)) &&
+						sequence1.getLineValue(seq1OffsetS) === sequence2.getLineValue(seq2OffsetS))) {
 					break;
 				}
 			}

src/vs/editor/common/diff/defaultLinesDiffComputer/lineSequence.ts

@@ -34,6 +34,10 @@ export class LineSequence implements ISequence {
 	isStronglyEqual(offset1: number, offset2: number): boolean {
 		return this.lines[offset1] === this.lines[offset2];
 	}
+
+	public getLineValue(offset: number): string {
+		return this.lines[offset];
+	}
 }
 
 function getIndentation(str: string): number {

src/vs/editor/common/diff/defaultLinesDiffComputer/linesSliceCharSequence.ts

@@ -165,6 +165,10 @@ export class LinesSliceCharSequence implements ISequence {
 		const end = findFirstMonotonous(this.firstCharOffsetByLine, x => range.endExclusive <= x) ?? this.elements.length;
 		return new OffsetRange(start, end);
 	}
+
+	public getLineValue(offset: number): string {
+		return this.lines[offset];
+	}
 }
 
 function isWordChar(charCode: number): boolean {

src/vs/editor/test/node/diffing/fixtures/issue-214962/1.txt

@@ -0,0 +1,12 @@
+print("Left")
+
+
+if 1:
+    if 2:
+        pass
+
+if 3:
+    pass
+
+
+print("Done")

src/vs/editor/test/node/diffing/fixtures/issue-214962/2.txt

@@ -0,0 +1,9 @@
+print("Right")
+
+
+if 1:
+    if 2:
+        pass
+
+
+print("Done")

src/vs/editor/test/node/diffing/fixtures/issue-214962/advanced.expected.diff.json

@@ -0,0 +1,32 @@
+{
+	"original": {
+		"content": "print(\"Left\")\n\n\nif 1:\n    if 2:\n        pass\n\nif 3:\n    pass\n\n\nprint(\"Done\")\n",
+		"fileName": "./1.txt"
+	},
+	"modified": {
+		"content": "print(\"Right\")\n\n\nif 1:\n    if 2:\n        pass\n\n\nprint(\"Done\")\n",
+		"fileName": "./2.txt"
+	},
+	"diffs": [
+		{
+			"originalRange": "[1,2)",
+			"modifiedRange": "[1,2)",
+			"innerChanges": [
+				{
+					"originalRange": "[1,8 -> 1,12]",
+					"modifiedRange": "[1,8 -> 1,13]"
+				}
+			]
+		},
+		{
+			"originalRange": "[8,11)",
+			"modifiedRange": "[8,8)",
+			"innerChanges": [
+				{
+					"originalRange": "[8,1 -> 11,1 EOL]",
+					"modifiedRange": "[8,1 -> 8,1 EOL]"
+				}
+			]
+		}
+	]
+}

src/vs/editor/test/node/diffing/fixtures/issue-214962/legacy.expected.diff.json

@@ -0,0 +1,27 @@
+{
+	"original": {
+		"content": "print(\"Left\")\n\n\nif 1:\n    if 2:\n        pass\n\nif 3:\n    pass\n\n\nprint(\"Done\")\n",
+		"fileName": "./1.txt"
+	},
+	"modified": {
+		"content": "print(\"Right\")\n\n\nif 1:\n    if 2:\n        pass\n\n\nprint(\"Done\")\n",
+		"fileName": "./2.txt"
+	},
+	"diffs": [
+		{
+			"originalRange": "[1,2)",
+			"modifiedRange": "[1,2)",
+			"innerChanges": [
+				{
+					"originalRange": "[1,8 -> 1,11]",
+					"modifiedRange": "[1,8 -> 1,12]"
+				}
+			]
+		},
+		{
+			"originalRange": "[8,11)",
+			"modifiedRange": "[8,8)",
+			"innerChanges": null
+		}
+	]
+}