diff --git a/Makefile.pre.in b/Makefile.pre.in
index f9415aa8ea8..bafeb2baaa8 100644
--- a/Makefile.pre.in
+++ b/Makefile.pre.in
@@ -61,7 +61,7 @@ CFLAGS=		$(BASECFLAGS) $(OPT) $(EXTRA_CFLAGS)
 # Both CPPFLAGS and LDFLAGS need to contain the shell's value for setup.py to
 # be able to build extension modules using the directories specified in the
 # environment variables
-CPPFLAGS=	-I. -I$(srcdir)/Include @CPPFLAGS@
+CPPFLAGS=	-I. -IInclude -I$(srcdir)/Include @CPPFLAGS@
 LDFLAGS=	@LDFLAGS@
 LDLAST=		@LDLAST@
 SGI_ABI=	@SGI_ABI@
@@ -471,6 +471,7 @@ Modules/python.o: $(srcdir)/Modules/python.c
 
 
 $(GRAMMAR_H) $(GRAMMAR_C): $(PGEN) $(GRAMMAR_INPUT)
+		-@ mkdir Include
 		-$(PGEN) $(GRAMMAR_INPUT) $(GRAMMAR_H) $(GRAMMAR_C)
 
 $(PGEN):	$(PGENOBJS)
diff --git a/Misc/NEWS b/Misc/NEWS
index 7a8b35a6dbe..1f143491abc 100644
--- a/Misc/NEWS
+++ b/Misc/NEWS
@@ -960,6 +960,9 @@ Tools/Demos
 Build
 -----
 
+- Patch #786737: Allow building in a tree of symlinks pointing to
+  a readonly source.
+
 - Bug #1737210: Change Manufacturer of Windows installer to PSF.
 
 - Bug #1746880: Correctly install DLLs into system32 folder on Win64.
diff --git a/Modules/makesetup b/Modules/makesetup
index bc1b1b91517..8862c36e7b2 100755
--- a/Modules/makesetup
+++ b/Modules/makesetup
@@ -238,7 +238,7 @@ sed -e 's/[ 	]*#.*//' -e '/^[ 	]*$/d' |
 			no)	SHAREDMODS="$SHAREDMODS $file";;
 			esac
 			rule="$file: $objs"
-			rule="$rule; \$(LDSHARED) $objs $libs $ExtraLibs -o $file"
+			rule="$rule; \$(BLDSHARED) $objs $libs $ExtraLibs -o $file"
 			echo "$rule" >>$rulesf
 		done
 	done