Proposed revision:

Old version: Latin script

If the dominant English (from reliable sources) and local differ only in one or more of the rules listed in the table, the local version should be used. If one or more differences aren't listed in this table, the dominant English version should be used.

Restricted differences
Rule Example
use or lack of use of diacritics Ivanisevic < Ivanišević
use of a digraph as a replacement for a letter with diacritics Uebermensch < Übermensch
removing diacritics from a digraph Lodz < Łó
writing digraph with two letter where it should be written with one special letter IJsselmeer < IJsselmeer

New version

Added to the end of the first sentence of WP:UE

If the English version and the local version differ only in the use of digraphs and/or diacritics, use the local version.

Discussion

I thought you support the use of diacritics. That's why I invited you to this draft in the first place. Nevertheless, you can take a part in the discussion when this proposal becomes official. Admiral Norton (talk) 22:09, 8 July 2008 (UTC)
To tell you truth I will support anything to end this problem. If we write with local letters then we need to create redirect pages.
My problem is that I do not see logic in writing 1 name with local letters and another with english. In the end even this is not all. I have earlier protested renaming Palaeologus dynasty to greek version of name (Palaiologos). This is extreme example of naming nationalism because english version of name is Palaeologus, Spanish Paleólogo, Italian Paleologi, Russian Paleologi, South Slav Paleolozi, Holland Paleologen, French Paléologue. Only Greek and German use are new "english" version of name--Rjecina (talk) 23:20, 8 July 2008 (UTC)
If completed, this proposal probably won't solve many things at first, but it will at least clarify what the WP:UE means so that no more talk page battles are fought over Google hits. Admiral Norton (talk) 12:25, 9 July 2008 (UTC)