Diffusing the Situation

Which of the following sentences is correct?

1. The bomb squad diffused the bomb.
2. The bomb squad defused the bomb.

If you chose number 2, you are correct. The following is dictionary.com's definitions of the two words:

defuse:

verb (used with object)

1. to remove the fuze from (a bomb, mine, etc.).
2. to make less dangerous, tense, or embarrassing: to defuse a potentially ugly situation.

diffuse:

verb (used with object)

1. to pour out and spread, as a fluid.
2. to spread or scatter widely or thinly; disseminate.
3. Physics . to spread by diffusion.

You see that you cannot diffuse a situation. At all. Ever. Please don't write/say that you or someone else did that.

PS: I do not approve of spelling 'fuse' with a zed as above: "fuze." It just looks stupid.