  We present 0."5 resolution ALMA detections of the observed 246GHz continuum,
[CI]^3P_2-^3P_1 fine structure line ([CI]2-1), CO(7-6) and H2O lines in the
z=2.161 radio galaxy MRC1138-262, the 'Spiderweb Galaxy'. We detect strong
[CI]2-1 emission both at the position of the radio core, and in a second
component ~4kpc away from it. The 1100km/s broad [CI]2-1 line in this latter
component, combined with its H2 mass of 1.6x10^10Msun implies this emission
must come from a compact region <60pc, possibly containing a second AGN. The
combined H2 mass derived for both objects using the [CI]2-1 emission is
3.3x10^10Msun. The total CO(7-6)/[CI]2-1 line flux ratio of 0.2 suggests a low
excitation molecular gas reservoir and/or enhanced atomic carbon in cosmic-ray
dominated regions. We detect spatially-resolved H2O 2_{11}-2_{02} emission -
for the first time in a high-z un-lensed galaxy - near the outer radio lobe to
the east, and near the bend of the radio jet to the west of the radio galaxy.
No underlying 246GHz continuum emission is seen at either position. We suggest
that the H2O emission is excited in the cooling region behind slow (10-40km/s)
shocks in dense molecular gas (10^{3-5} cm^-3). The extended water emission is
likely evidence of the radio jet's impact in cooling and forming molecules in
the post-shocked gas in the halo and inter-cluster gas similar to what is seen
in low-z clusters and other high-z radio galaxies. These observations imply
that the passage of the radio jet in the interstellar and inter-cluster medium
not only heats gas to high temperatures as is commonly assumed or found in
simulations, but also induces cooling and dissipation which can lead to
substantial amounts of cold dense molecular gas. The formation of molecules and
strong dissipation in the halo gas of MRC1138-262 may explain both the extended
diffuse molecular gas and young stars observed around MRC1138-262.
