white space nodes in the stylesheet are not copied to the output
by default (unless they are in xsl:text), so just make sure all the
characters you want to output are not in the same text nodes as
the white space used for indenting the stylesheet.

<xsl:template match="x">
  hello
  <xsl:apply-templates/>
</xsl:template>


the first text node is newline, 2 spaces, hello, newline, 2 spaces.
and will be copied as such to the output, but


<xsl:template match="x">
  <xsl:text>hello</xsl:text>
  <xsl:apply-templates/>
</xsl:template>

Now the newlines are in text nodes that just consist of white space, so
are stripped.

There are variations such as


<xsl:template match="x">
  <xsl:text/>hello<xsl:apply-templates/>
</xsl:template>

David

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 XSL-List info and archive:  http://www.mulberrytech.com/xsl/xsl-list