Subversion, Git, Mercurial and others support three-way merges (combining mine, theirs, and the "base" revision) and support graphical tools to resolve conflicts.
What tool do you use? Windows, Mac OS X, Linux, free or commercial, you name it.
Here's a few that I've used or heard of, just to get the conversation started:
(I recognize that this is sort of like the Best Diff Tool, but it's different in that I explicitly focus on three-way merge tools; WinMerge is off the list, for example.)
KDiff3 open source, cross platform
Same interface for Linux and Windows, very smart algorithm for solving conflicts, regular expressions for automatically solving conflicts, integrate with ClearCase, SVN, Git, MS Visual Studio, editable merged file, compare directories
Its keyboard-navigation is great: ctrl-arrows to navigate the diffs, ctrl-1, 2, 3 to do the merging.