If an examiner deliberately insists on flagrantly misinterpreting the dictionary definition of a key word in a patent application in order to support his "belief" that another cited patent contains conflictual prior art does the applicant have a remedy. I might add that this is my case at the moment where my examiner insists on interpreting the word " encompass" as meaning "replace".
Eric Shain provides a good answer which can work. There is a risk associated with that route, though: you might upset the examiner by going over his/her head. At the end of the day, if going to the supervisor is the only route forward, then it must be done.
But before going that far, you might consider having a phone interview. In my limited experience, phone interviews were almost always far more productive than written replies to Office actions. On the phone, you can ask the examiner what basis he/she is using for his/her interpretation of the word "encompass." You can politely that you've never heard of that definition and then ask for a dictionary reference which supports his/her interpretation. A lot of the time, you'll find there's something else the examiner is getting hung up on, and you can tease it out in a phone interview. (Examiners aren't given sufficient time to carefully explain all the nuances of their rationale--and it's much harder to do so on paper than in a conversation.) Once you know the real reason for the examiner's rejection, you can respond more appropriately and productively.
In a phone interview, you can also sometimes make tremendous progress by asking the examiner directly: "Look, we really think the described invention is different from the prior art you've cited, and we think you'll agree with us that X is different from Y. What language would I need to add to the claims to narrow them enough so they don't encompass this prior art?" An examiner might not always be willing to go down that route--he/she might say "that's the job of the attorney." If you get this sort of resistance, you might politely say: "I agree, but you're using words in non-conventional ways that I can't find in dictionaries. My goal here is to work with you and make progress. What about X, Y, or Z? Are any of those words better? Why not?" When you go into the phone call, have a few alternatives ready to propose.
Among the many things to be aware of, one is whether or not the new term is adding new material to the application. You can't amend the claims in a way that goes beyond the original disclosure. Check with your patent attorney (and potentially also with the examiner) on whether the amendment/the new language would be considered new matter.
I am no expert, and this response is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney or legal expert to obtain advice with respect to any particular issue or problem. Laws can differ dramatically from country to country, state to state, and technology field to technology field.
I'm not a lawyer, but during the prosecution of one of my patents, the examiner was clearly misinterpreting some prior art. Sort of the equivalent of saying that a bicycle is the technical equivalent of an airplane because both can be used to transport people. After several rounds of ineffective communications with the examiner my attorney raised the issue up to the examiner's supervisor who overruled him. So my best suggestion is to appeal to the examiner's supervisor. Also, based on jdpatent's excellent answer I would suggest this approach be used as a last ditch effort.
While going around the examiner by calling the supervisor directly could be risky, requesting that the supervisor be on the call with the examiner is not unusual and would not be going around the examiner.
It has been mentioned in other answers that you can discuss with the examiner in a phone interview, request the examiners superviser be present in that interview or contact the superviser directly. (Preferrably in that order).
Adding to that, you can actually send the exainer a copy of the dictionary page (or offer to do so in the phone interview).
To mention a complete set of possiblities, you can also file a notice of appeal against the office action if the claim(s) has/have been rejected twice. I heard that many examiners reconsider their arguments on the notice of appeal already if they aren't completly sure. A benefit is, even if the examiner reopens prosecution that way, your appeal fees aren't wasted, you can use them on the next appeal for that application if you run into trouble again. If you think the examiner is behaving irrationally and nothing else helps, that's a way to get a different authority to judge your argument.
Another option is to file a continuation application with claims focusing on slightly different things in order to get the continuation examined in a different art unit -- and thus before a different examiner.
As for talking to the supervisor, this often happens on its own. I once had the reverse problem of what you describe -- the examiner called my patent lawyer and said "I can't find any prior art to support a rejection, but my supervisor insists that I not issue this one, so just file an appeal." Another time I got an office action where they inadvertently left "track changes" turned on. The office action had notes from the supervisor where the supervisor said in one place "this is a weak ground for rejection" -- but of course the rejection was left in.