Real dialogues often feature conflicting beliefs and goals between the participants. In such cases, it is often necessary for one participant to reason about the nature of the conflict and respond appropriately. This paper presents a brief outline of a computational theory of dialogue understanding which can deal with such conflicts. Our theory is capable of distinguishing between cases of pragmatic communication, deception and mistaken belief and using such distinctions to infer the goals of the speaker. We will also discuss some initial work on dialogue control to resolve such conflicts.