I have been an iphone developer for a while, and I have recently been including git in my workflow. I have used git settings found on http://shanesbrain.net/2008/7/9/using-
I did create a Python script that can handle merge conflicts in XCode Project files.
If you want to try it, you can check it out here: https://github.com/simonwagner/mergepbx
You will have to install it as a merge driver, so it gets called automatically when you have a merge conflict in your project file (the README.md will tell you how to do that).
It should work much better than using merge=union as mergepbx understands the semantics of your project file and therefore will resolve the conflict correctly.
However the project is still alpha, don't expect it to understand every project file that is out there.