> 1. How can I replace &lt; and  &lt; with < and > in the ouput.

They only appear in the output because you constructed that string in
the result tree. Element nodes have _nothing_ to do with the syntax
<...> in XSL, _if_ the result tree is linearised in XML concrete syntax
then that syntax will be used, but conceptually you are building a tree
and any linearisation happens much later.

Use <xsl:element name="{$tag}">...</xsl:element>
 to construct an element with name given by the variable tag.
(and use xsl:copy-of not xsl:value of to copy variables taht have
structured values.

David


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