Sounds like you'll have allot of material from the hole you dig. Using the dirt to build up a dam would give you more depth, more surface area and less digging.
If you do that, then you need a core trench and compaction.
What I'm wondering is where will the spillway be? After the dam is built, you could dig a spill way back into the side of the hill to keep it on virgin soil.
It sounds confusing,
Eddie