$ hg init base
$ cd base
$ echo 'alpha' > alpha
$ hg ci -A -m 'add alpha'
adding alpha
$ cd ..
$ hg clone base work
updating to branch default
1 files updated, 0 files merged, 0 files removed, 0 files unresolved
$ cd work
$ echo 'beta' > beta
$ hg ci -A -m 'add beta'
adding beta
$ cd ..
$ cd base
$ echo 'gamma' > gamma
$ hg ci -A -m 'add gamma'
adding gamma
$ cd ..
$ cd work
$ hg pull -q
$ hg merge
1 files updated, 0 files merged, 0 files removed, 0 files unresolved
(branch merge, don't forget to commit)
Update --clean to revision 1 to simulate a failed merge:
$ rm alpha beta gamma
$ hg update --clean 1
2 files updated, 0 files merged, 0 files removed, 0 files unresolved