To turn on "word-granularity" or "fine" differences set the option magit-diff-refine-hunk documented in Diff Options.
The reason that doesn't seem to properly work for you probably is due to a regression in the theme you are using. If you have not updated zenburn in a long time, then you might be in luck and doing so does the trick. Related issues are https:...
In line with the suggests above, it was a problem with my Git config. Commenting the following lines out of my config file resolved the issue.
# ui = always
# [color "diff-highlight"]
# # oldNormal = red bold
# oldHighlight = red bold 52
# newNormal = green bold
# newHighlight = green bold 22
# [color "diff"]
# commit = green
# meta ...
:extend is a new face property in the development version of Emacs 27. I still hope it won't make it into Emacs 27.1 in its current form.
Never-the-less I have updated Magit to set this attribute when necessary (i.e. only for certain faces and only when using Emacs 27). If you are using Emacs 27 but have not pulled and recompiled in a month or so, then you ...
Is it possible to reconfigure magit for that behavior? Probably this could be configured in git itself?
No and no. But you already found a workaround (which you should probably post as an answer).
I would like to setup magit in such a way that: [...] pulling from [the upstream branch] should be done with merge
You shouldn't do that. When you merge a ...