From your question, I assume that you are already using composite projects, being that you talk about a settings.xml file.
While I don't use Git (I use SVN), I found that to get maximum benefit from diffs I had to make sure that the "Pretty print project files" preference was set. For some (I guess historical) reason, this setting is on the WSDL preferences page:
While this allows you to see exactly what has changed when diff-ing versions, it does have the problem that it is an application setting, thus you have to make sure all users set this value manually on their copies of ReadyAPI (If a user does not set this in their copy ReadyAPI it will revert to saving on a single line). Ideally I would like to see this as a project setting.
I will give that a try, thank you
