I am trying to find a way to compare two text files through Flex and show diff in the user interface. Is there any way or way to do this?
You can read local files with a FileReference object, so the answer is yes. Using this API, you can upload files, but comparing them is not a feature built into the framework, so you will have to provide a mechanism for this as soon as the files are downloaded.
More information about downloading local files can be found here: http://www.mikechambers.com/blog/2008/08/20/reading-and-writing-local-files-in-flash-player-10/ .