You in the UK? You'll need to see what the laws are.
In the US, it's mostly "Buyer Beware" and most used cars are sold "as is"...but if you can show that the seller knew about a bad problem but still still advertised the car as having "no engine problems", you would have some wiggle room.
You will probably have to go down there and demand they fix the head gasket as they obviously knew about it.
Edit: Oh, and just for reference. Used car dealers hate going to court, because they usually lose...so I wouldn't be afraid to at least tell them that would be your next option if they are not willing to make it right. But give them the chance first though.