Factor x2−y2=(x−y)(x+y) to reveal a removable form; on a neighbourhood off the diagonal f is the polynomial x+y; verify the differentiability definition (zero remainder).
Solution
Step 1 — Simplify the defining expression
For (x,y)=(1,1),(1,−1) (in particular wherever x=y),
x−yx2−y2=x−y(x−y)(x+y)=x+y.
So away from the diagonal x=y the function equals the polynomial x+y. The point of interest is (1,−1), where x=y, so on a full neighbourhood of (1,−1) (which avoids the line x=y since 1=−1) we have f(x,y)=x+y except possibly at the single prescribed point (1,−1) itself, where f=0.
The defined value is f(1,−1)=0. Limit equals value, so f is continuous at (1,−1).
(The point (1,1) lies on the diagonal and far from (1,−1), so it does not interfere; a punctured neighbourhood of (1,−1) contains no point of the line x=y.)
Step 3 — Differentiability at (1,−1)
A function of two variables is differentiable at a=(1,−1) if there is a linear map (the gradient) L=(A,B) with
f(a+h)−f(a)−(Ah1+Bh2)=o(∥h∥)as h→0.
On the punctured neighbourhood, f(1+h1,−1+h2)=(1+h1)+(−1+h2)=h1+h2, and f(1,−1)=0. Take A=B=1 (so L(h)=h1+h2):