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Rango defeats Rattlesnake Jake by earning his respect through bravery and cunning. After the Mayor betrays Jake and traps Rango and Beans in a filling water vault, Rango uses the single bullet he secretly kept. Beans accidentally swallows the bullet during a kiss, and Rango performs the Heimlich maneuver to launch it from her mouth, shattering the glass and flooding the town. Impressed by Rango's survival and adherence to the 'one bullet' legend, Jake tips his hat ('One legend to another') and drags the treacherous Mayor into the desert.
In the movie Rango, the protagonist doesn't defeat Rattlesnake Jake through a typical shootout or by killing him. Instead, he defeats him through a combination of a clever tactical maneuver and by earning Jake's respect, which ultimately turns Jake against the film's true antagonist, the Mayor.
Here are the specific details of the confrontation:
After Rango returns to the town of Dirt, he challenges Jake to a final showdown. However, the Mayor intervenes, revealing his plan to replace the "Old West" (including outlaws like Jake) with a modern civilization. The Mayor betrays Jake, holding him at bay with a gun, and traps Rango and Beans inside the bank's glass vault, which he begins to fill with water to drown them.
Throughout the movie, a recurring motif is that Rango claims to have killed the "Jenkins Brothers" with a single bullet. In the climax, Rango actually makes this "one bullet" legend a reality.
Rango emerges from the water and retrieves his gun. Rather than shooting the Mayor or Jake, he shows he is a true lawman. Jake, who lives by a strict (albeit violent) code of honor, realizes that the Mayor is a cowardly businessman who intended to dispose of him, while Rango—the "fake" sheriff—behaved with the bravery of a real hero.
Jake is so impressed by Rango’s survival and his use of the "one bullet" that he acknowledges Rango as a peer. Jake famously says, "I tip my hat to you... one legend to another."
Jake then "defeats" himself by simply leaving the town. He grabs the treacherous Mayor by the waist with his coils and drags him out into the desert to deal with him personally, effectively removing both threats from the town of Dirt at once.
Summary: Rango defeats Jake by outsmarting the Mayor's trap, surviving a situation Jake thought was impossible, and proving that his "legend" was more than just a lie. This causes Jake to lose his desire to kill Rango and instead focus his wrath on the Mayor.
The summary misses the specific, comedic mechanism of the escape: Rango performing the Heimlich maneuver on Beans to launch the bullet.
The summary incorrectly implies a deliberate plan to give Beans the bullet, whereas in the film, she swallows it accidentally during a kiss.