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The guards here (all except the first) are considered function names:

Diag2 l1 l2 :== diag2_ l1 l2
where
	diag2_ [|] ys = [|]
	diag2_ xs [|] = [|]
	diag2_ xs ys = [(ae,be) \\ (a,b) <- takeall xs [|] ys [|], ae <|- a & be <|- b]
	where
		takeall xin xout yin yout
		| morex && morey = [|(nxout,nyout):takeall nxin nxout nyin nyout]
		| morey = [|(xout,Tl nyout):takeall xin xout nyin (Tl nyout)]
		| morex = [|(nxout,yout):takeall nxin nxout yin yout]
		| otherwise = shift xout yout
		where
			(morex,nxin,nxout) = takexnext xin xout
			(morey,nyin,nyout) = takeynext yin yout
			takexnext [|x:xs] accu = (True,xs,[|x:accu])
			takexnext [|] accu = (False,[|],accu)
			takeynext [|y:ys] accu = (True,ys,accu ++| [|y])
			takeynext [|] accu = (False,[|],accu)
			shift xout [|_:ys] = [|(xout,ys):shift xout ys]
			shift _ [|] = [|]