Adapting the Git configuration to treat UTF-16 encoded strings file as text does the trick for command-line diffs as well as when viewing pre-commit diffs in SourceTree (when viewing "Uncommitted changes"). However, it's not working when viewing committed changes. Based on this behavior, this doesn't appear to be Git problem.
Does anyone know why SourceTree can show pre-commit diffs but bails on committed changes?
I think you might be looking for this: http://stackoverflow.com/questions/14990993/override-gits-choice-of-binary-file-to-text (As far as I know, you need to make Git understand this, not SourceTree.)
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