Is there an option like "treat ^M as newline when diffing" ?

There will be one with Git 2.16 (Q1 2018), as the "diff" family of commands learned to ignore differences in carriage return at the end of line.

See commit 446d12c (26 Oct 2017) by Junio C Hamano (gitster).
Helped-by: Johannes Schindelin (dscho).
^{(Merged by Junio C Hamano -- gitster -- in commit 10f65c2, 27 Nov 2017)}

diff: --ignore-cr-at-eol

 

A new option --ignore-cr-at-eol tells the diff machinery to treat a carriage-return at the end of a (complete) line as if it does not exist.

 

Just like other "--ignore-*" options to ignore various kinds of whitespace differences, this will help reviewing the real changes you made without getting distracted by spurious CRLF<->LF conversion made by your editor program.

Is there an option like "treat ^M as newline when diffing" ?

There will be one with Git 2.16 (Q1 2018), as the "diff" family of commands learned to ignore differences in carriage return at the end of line.

See commit e9282f0 (26 Oct 2017) by Junio C Hamano (gitster).
Helped-by: Johannes Schindelin (dscho).
^{(Merged by Junio C Hamano -- gitster -- in commit 10f65c2, 27 Nov 2017)}

diff: --ignore-cr-at-eol

A new option --ignore-cr-at-eol tells the diff machinery to treat a carriage-return at the end of a (complete) line as if it does not exist.

Just like other "--ignore-*" options to ignore various kinds of whitespace differences, this will help reviewing the real changes you made without getting distracted by spurious CRLF<->LF conversion made by your editor program.