Here's the problem-- because diamonds are so pure (simply compressed carbon), it is impossible to chemically/microscopically determine a diamond's origin. Therefore, it is possible to smuggle conflict diamonds into, say, Canada, and put them onto the market for resale. I'm not saying it happens a lot, only that it is possible. If you look at theoretical diamond annual yields, for example, you'll find that countries surrounding conflict regions have significantly higher diamond outputs after the Kimberly process went into effect.

Of course, there are other reasons to boycott diamonds besides the fact that they spur conflict and terrorism (price-fixing/anti-competitive measures, etc.).

In sum, blood/conflict diamond, or not, buying diamonds still represents bad public (and private) policy.