DFSORT has different limits for the number of conditions based on the length and format of the fields and constants.
You can get around these limits in several way. One way is to use multiple IFTHEN clauses as described in the Programmer Response for the message ICE151A you undoubtedly received. Another way is to do matching with SPLICE instead of using INCLUDE/OMIT.
If you need more specific help, please show an example of the records in each input file (relevant fields only) and what you expect for output. Explain the "rules" for getting from input to output. Give the starting position, length and format of each relevant field. Give the RECFM and LRECL of the input files. If file1 can have duplicates within it, show that in your example. If file2 can have duplicates within it, show that in your example.