How to use p4merge as the merge/diff tool for Mercurial?

Question

Does anyone know how to setup Mercurial to use p4merge as the merge/diff tool on OS X 10.5?

Answer 1

I found Ry4an's answer to be a good solution, except for a minor problem, which left p4merge (under mac os) mixing up the command inputs. Do everything described in his answer and add the following line in the [merge-tools] section:

p4.args=$base $local $other $output

This line tells mercurial in which order p4merge takes its arguments.