[Note: this is a placeholder for ongoing development for a solution]
Currently the rails_generator framework handles conflicts (where a file to be generated already exists) by providing two options: skip or override/force. You can also perform a diff on the two files, but you are then returned back to choose btw skip or override.
I propose to add a 3rd option: merging.
Merging work as it does for subversion merging. For conflicts it will create two new files, representing the original and the new version; and the working file will be marked up to show where the conflict exists, and displaying the two options.
When the rails_generator operation is complete it will display whether merged files where merged cleanly or whether there were conflicts that require the user's attention.
As a bonus, as per svn merging, this should show up the merge as a conflict for the svn operation "svn status".