Version control for collaboration (with word-level diffs)?
I've used git to collaborate on some documents written in latex. You'll have to adhere to some rules:


Start each sentence on a new line, latex ignores these newlines as long as there is no blank line
Use the same configuration for formatting (tab/spaces/max text width)
For best results, create a .gitattributes file in your repository and add the line *.tex    diff=tex. This makes diff aware of the tex syntax and leads to more meaningful output.


You can then use git diff --color-words and gitk --color-words to see word differences (also see this article Word-by-word diffs in Git on how to configure git to always use word-diff algorithm for displaying the git diff/git log).

To reduce the manual merges, I can recommend using separate files for sections and subsections (depending on the size of your document).