With XSLT 2.0 it looks manageable
<?xml version="1.0" encoding="utf-8"?>
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
xmlns:xs="http://www.w3.org/2001/XMLSchema"
exclude-result-prefixes="xs"
version="2.0">
<xsl:strip-space elements="*"/>
<xsl:output indent="yes"/>
<xsl:template match="root">
<xsl:copy>
<xsl:for-each-group select="*" group-adjacent="boolean(preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]])">
<xsl:choose>
<xsl:when test="current-grouping-key()">
<p>
<xsl:apply-templates select="current-group()/node()"/>
</p>
</xsl:when>
<xsl:otherwise>
<xsl:copy-of select="current-group()"/>
</xsl:otherwise>
</xsl:choose>
</xsl:for-each-group>
</xsl:copy>
</xsl:template>
</xsl:stylesheet>
With XSLT 1.0 my usual approach is sibling recursion but it needs nastily long and convoluted match patterns:
<?xml version="1.0" encoding="utf-8"?>
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
xmlns:xs="http://www.w3.org/2001/XMLSchema"
exclude-result-prefixes="xs"
version="1.0">
<xsl:strip-space elements="*"/>
<xsl:output indent="yes"/>
<xsl:template match="@* | node()">
<xsl:copy>
<xsl:apply-templates select="@* | node()"/>
</xsl:copy>
</xsl:template>
<xsl:template match="processing-instruction()[contains(., 'key')]"/>
<xsl:template match="p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and preceding-sibling::node()[2][not(self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]])]]">
<p>
<xsl:apply-templates select="." mode="collect"/>
</p>
</xsl:template>
<xsl:template match="p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and preceding-sibling::node()[2][self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]]]]"/>
<xsl:template match="p" mode="collect">
<xsl:apply-templates/>
<xsl:apply-templates select="following-sibling::node()[2][self::p and preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]]" mode="collect"/>
</xsl:template>
</xsl:stylesheet>
And finally, as you seem to want to use a key, a variation of the sibling recursion shown above which uses a key
to identity a group of p
elements, is as follows:
<?xml version="1.0" encoding="utf-8"?>
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
xmlns:xs="http://www.w3.org/2001/XMLSchema"
exclude-result-prefixes="xs"
version="1.0">
<xsl:strip-space elements="*"/>
<xsl:output indent="yes"/>
<xsl:key name="collect"
match="p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and preceding-sibling::node()[2][self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]]]]"
use="generate-id(preceding-sibling::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and not(preceding-sibling::node()[2][self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]]])][1])"/>
<xsl:template match="@* | node()">
<xsl:copy>
<xsl:apply-templates select="@* | node()"/>
</xsl:copy>
</xsl:template>
<xsl:template match="processing-instruction()[contains(., 'key')]"/>
<xsl:template match="p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and preceding-sibling::node()[2][not(self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]])]]">
<p>
<xsl:apply-templates select="./node() | key('collect', generate-id())/node()"/>
</p>
</xsl:template>
<xsl:template match="p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]
and preceding-sibling::node()[2][self::p[preceding-sibling::node()[1][self::processing-instruction()[contains(., 'key')]]]]]"/>
</xsl:stylesheet>