I had this same problem, except its VERY easilly remedied...
Okay, Sephiroths attack pattern is like this -
Attack
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Heal if Cloud is dead
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Okay, now. This tells you that you MUST kill him with cloud.
Go into Jenova, give young cloud Master Magic and such. Then kill the dragon like that. Its tedius yes (because cloud dies a lot), but just have some patience :p