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Use a pry bar to remove the existing retaining wall. Be careful: Concrete blocks are heavy. You may be able to recycle parts of the old wall.
Dig out a slope to create a terraced angle for the stone wall. Don't cut too far into the root systems of nearby trees and shrubbery, or you may kill them. You may need to add or remove dirt to accommodate the different sizes of stones.
Begin fitting stones in place. You'll need help with this task because some stones are very heavy. You'll save energy and effort by using a hand truck to carry large stones. Hand trucks are usually available at rental-supply centers.
No mortar is needed: Just place each stone firmly before setting another stone on top of it. You'll need to try stones of different shapes and sizes in various spots. Try to maintain a balance between large and small stones. Use the dirt you removed in creating the slope to fill in gaps so that the stones are seated firmly.
Dig out an even slope to create steps.
Place stones and cut-out dirt as necessary to get the proper step height and depth, which should be as close as possible to those of standard steps. This will involve some trial and error.
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