You'll now have to face off against Diamond Weapon to try and prevent it from destroying Midgar. Land the Highwind on the coast north of Midgar and suit yourself up with your most powerful stuff. You'll definitly want to have someone equiped with the Steal materia, because Diamond has Rising Sun, a double-AP weapon for Yuffie. This weapon was not included in the Japanese version of the game, so you might want to get it just for novelty's sake. Diamond is pretty weak offensively, but he's got a thick defense. So, you have to hit him as hard as you can, as fast as you can. He does have one powerul attack, but it takes him several rounds to charge it up. If you work hard, you can kill him before then. If not, it will hurt you a lot. Fortunatly, he won't try to do anything else after that, so you can attack him and kill him very easily. after you defeat him, you'll see a cool video in which Diamond hits Midgar with a volley of energy weapons. This attack Destroys the top few floors of Shinra HQ, and also kills Rufus. Unfortuantly, Diamond is almost imediatly hit by the energy beam fired from the sister ray that's now been mounted on Midgar. The blast will go right through Diamond, slamming into the barrier around the Northern Crater and destroying it. You'll talk with your party, and decide that you need to go stop Hojo.
Now, before you go flying over to Midgar to kill Hojo, go back up to Bone Village. If you excavate for Normal Items, and look directly beneath the canopy of the crashed jet, you can turn up the Sector 5 Key, which will give you access to the slums of Midgar. You can actually go do this at any time during Disc 2. It's been a while since you were last here, and nothing's changed. There are some things you can do here. Visiting the church will present you with a brief glimpse of a lost loved one, and in the little shop that says Item over the door in Wall Market (the place with the machine gun on the ceiling) holds Tifa's Premium Heart, her best weapon. Just go up to the computer and it'll be there. One last thing. If you visit the man in the Gun Shop (the guy with the tank), he'll offer to sell you something else for 129,000 gil. If you accept, you'll get a Sneak Glove, an accessory that raises your stealing rate.
There's one last thing you can do before you fly over Midgar, and that is get rid of Ultimate Weapon, who's sitting in the crater next to Junon. Equip yourself well, then fly the Highwind right into him. This will start the battle with him. After taking so much damage in the battle, UW will eventually run away. He will beging flying around somewhere in the world. The location is randomized, so you'll have to look arounda little bit. When you do find him, hit him with the Highwind. After hitting him a few times, he'll begin flying in a straight line. Let him. When he settles over something, fly into him again. This will start another battle. Watch out, though, because if he decides to sit over Midgar, you'll immediately be swept into the next sequence. When he's down to him last few HP, UW will go near Cosmo Canyon. Giving him a finishing shot will cause him to cast Shadow Flare, an enemy skill that targets one person (in this case, UW's killer) for enormous damage. If you want to learn the spell early, have that person equipped with an Enemy Skills materia. Btw, UW won't go anywhere even if you decide to do the Midgar sequence first, so if you don't think you're strong enough, wait until Disc 3.