While what Simon says is generally true, it's not *completely* true that XSLT can't be used to interpolate a hierarchy. See the XSL FAQ at http://www.dpawson.co.uk/xsl/sect2/flatfile.html for an approach treating your step 2 as a grouping problem, and leveraging your hierarchy that way (the trick is to use a key to associate each node with its most recently preceding break, then create a new paragraph every time you process a break with any associated nodes, pulling them into it).

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