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I use old-school gasket shellac on all the gaskets, as it's helped prevent deterioration, and seals better. But it's not necessary. The white sealant was probably contact adhesive, a gasket sealant, or even silicone.

No head bolts go into a water jacket. Definitely don't use sealer on them. If there was sealer used before, chase the threads with a good tap, and use compressed air to blow them out, otherwise you'll get the wrong torque reading on the bolts, and will be more likely to blow the gasket. I used a thin layer of Lubriplate on almost all the bolts of my engine. I even assembled it with the stuff. No modern synthetic assembly lube for me...just plain white moly grease :p. Besides, it can be added to the engine oil as a viscosity modifier, and has very high moly and ZDP in it, so it's not harmful.
 
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