diff --git a/platform/lang-impl/src/com/intellij/psi/formatter/common/InjectedLanguageBlockBuilder.java b/platform/lang-impl/src/com/intellij/psi/formatter/common/InjectedLanguageBlockBuilder.java
index fba17948117c..4e0d12bcea93 100644
--- a/platform/lang-impl/src/com/intellij/psi/formatter/common/InjectedLanguageBlockBuilder.java
+++ b/platform/lang-impl/src/com/intellij/psi/formatter/common/InjectedLanguageBlockBuilder.java
@@ -22,10 +22,12 @@ import com.intellij.lang.LanguageFormatting;
 import com.intellij.openapi.diagnostic.Logger;
 import com.intellij.openapi.util.Ref;
 import com.intellij.openapi.util.TextRange;
+import com.intellij.openapi.util.text.StringUtil;
 import com.intellij.psi.PsiElement;
 import com.intellij.psi.PsiFile;
 import com.intellij.psi.PsiLanguageInjectionHost;
 import com.intellij.psi.codeStyle.CodeStyleSettings;
+import com.intellij.psi.impl.source.tree.FileElement;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 
@@ -105,6 +107,17 @@ public abstract class InjectedLanguageBlockBuilder {
 
   public void addInjectedLanguageBlockWrapper(final List<Block> result, final ASTNode injectedNode,
                                               final Indent indent, int offset, @Nullable TextRange range) {
+
+    //
+    // Do not create a block for an empty range
+    //
+    if (range != null) {
+      if (range.getLength() == 0) return;
+      if(StringUtil.isEmptyOrSpaces(range.substring(injectedNode.getText()))) {
+        return;
+      }
+    }
+    
     final PsiElement childPsi = injectedNode.getPsi();
     final Language childLanguage = childPsi.getLanguage();
     final FormattingModelBuilder builder = LanguageFormatting.INSTANCE.forContext(childLanguage, childPsi);
diff --git a/xml/impl/src/com/intellij/codeInsight/editorActions/XmlGtTypedHandler.java b/xml/impl/src/com/intellij/codeInsight/editorActions/XmlGtTypedHandler.java
index a3c483947650..222ae836d846 100644
--- a/xml/impl/src/com/intellij/codeInsight/editorActions/XmlGtTypedHandler.java
+++ b/xml/impl/src/com/intellij/codeInsight/editorActions/XmlGtTypedHandler.java
@@ -26,6 +26,7 @@ import com.intellij.openapi.editor.ex.EditorEx;
 import com.intellij.openapi.editor.highlighter.HighlighterIterator;
 import com.intellij.openapi.fileTypes.FileType;
 import com.intellij.openapi.project.Project;
+import com.intellij.openapi.util.TextRange;
 import com.intellij.psi.*;
 import com.intellij.psi.codeStyle.CodeStyleManager;
 import com.intellij.psi.html.HtmlTag;
@@ -216,35 +217,36 @@ public class XmlGtTypedHandler extends TypedHandlerDelegate {
         if (hasBalance) return Result.CONTINUE; 
       }
 
-      boolean insertedCData = false;
+      TextRange cdataReformatRange = null;
       final XmlElementDescriptor descriptor = tag.getDescriptor();
 
       if (descriptor instanceof XmlElementDescriptorWithCDataContent) {
         final XmlElementDescriptorWithCDataContent cDataContainer = (XmlElementDescriptorWithCDataContent)descriptor;
 
         if (cDataContainer.requiresCdataBracesInContext(tag)) {
-          @NonNls final String cDataStart = "><![CDATA[\n";
+          int rangeStart = offset;
+          @NonNls final String cDataStart = "><![CDATA[";
           final String inserted = cDataStart + "\n]]>";
           editor.getDocument().insertString(offset, inserted);
           final int newoffset = offset + cDataStart.length();
           editor.getCaretModel().moveToOffset(newoffset);
           offset += inserted.length();
-          insertedCData = true;
+          cdataReformatRange = new TextRange(rangeStart, offset + 1);
         }
       }
 
       editor.getDocument().insertString(offset, "</" + name + ">");
 
-      if (insertedCData) {
+      if (cdataReformatRange != null) {
         PsiDocumentManager.getInstance(project).commitDocument(editor.getDocument());
-        try {
-          CodeStyleManager.getInstance(project).adjustLineIndent(file, editor.getCaretModel().getOffset());
+        try {          
+          CodeStyleManager.getInstance(project).reformatText(file, cdataReformatRange.getStartOffset(), cdataReformatRange.getEndOffset());
         }
         catch (IncorrectOperationException e) {
           LOG.error(e);
         }
       }
-      return insertedCData ? Result.STOP : Result.CONTINUE;
+      return cdataReformatRange != null ? Result.STOP : Result.CONTINUE;
     }
     return Result.CONTINUE;
   }
diff --git a/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java b/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java
index b4f878dd815b..f4258ec7f272 100644
--- a/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java
+++ b/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java
@@ -67,7 +67,7 @@ public class SyntheticBlock extends AbstractSyntheticBlock implements Block, Rea
         return Spacing.getReadOnlySpacing();
       }
       if (type1 == XmlElementType.XML_CDATA_START && type2 == XmlElementType.XML_CDATA_END) {
-        return Spacing.createSpacing(0, 0, 0, myXmlFormattingPolicy.getShouldKeepLineBreaks(), 0); 
+        return Spacing.createSpacing(0, 0, 0, myXmlFormattingPolicy.getShouldKeepLineBreaks(), myXmlFormattingPolicy.getKeepBlankLines()); 
       }
       if (type1 == XmlElementType.XML_CDATA_START && child2 instanceof AnotherLanguageBlockWrapper ||
           type2 == XmlElementType.XML_CDATA_END && child1 instanceof AnotherLanguageBlockWrapper) {