The option to hide ancestor is available only in
3-way mode. The ancestor is still taken into account to make
the comparison, this option just gives more place to left and
right versions.
Use the icon from
the toolbar or the View / Show/Hide ancestor for
diff/merge menu item.
If you
want to completely remove the ancestor, use the icon from the
toolbar or follow the idications in: changing quickly
comparisons paths
icon from
the toolbar or the View / Show/Hide ancestor for
diff/merge menu item.
If you
want to completely remove the ancestor, use the 
icon from the
toolbar or follow the idications in: