As mentioned above Cavitation is a by-product of normal operation on a diesel engine, and if the DCA is not checked and maintained at each oil change, both the block & liners will look as though you have termites in your cooling system.
I was employed as a diesel mechanic for many years and have witnessed this damage first hand.
Since your damage seems minimal in that one small area of the sealing surface it should be relatively easy to repair with many products on the market. Be sure to use one that is relatively easy to re-create the sealing surface, and definitely get some dca test strips. Does you 706 have a water filter on the engine? If not, they are easy to rig up, and you could then install a new water filter with the DCA already added to the water filter.
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