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 5f92e07ecf7f..a9794eecce73 100644
--- a/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java
+++ b/xml/impl/src/com/intellij/psi/formatter/xml/SyntheticBlock.java
@@ -19,13 +19,16 @@ import com.intellij.formatting.*;
 import com.intellij.lang.ASTNode;
 import com.intellij.openapi.util.TextRange;
 import com.intellij.psi.PsiElement;
+import com.intellij.psi.PsiWhiteSpace;
 import com.intellij.psi.formatter.common.AbstractBlock;
 import com.intellij.psi.tree.IElementType;
 import com.intellij.psi.xml.XmlAttribute;
 import com.intellij.psi.xml.XmlElementType;
 import com.intellij.psi.xml.XmlTag;
 import com.intellij.psi.xml.XmlTokenType;
+import com.intellij.util.text.CharArrayUtil;
 import org.jetbrains.annotations.NotNull;
+import org.jetbrains.annotations.Nullable;
 
 import java.util.List;
 
@@ -103,6 +106,11 @@ public class SyntheticBlock extends AbstractSyntheticBlock implements Block, Rea
     boolean firstIsEntityRef = isEntityRef(node1);
     boolean secondIsEntityRef = isEntityRef(node2);
 
+    if ((secondIsText && isInlineTag(node1) || firstIsText && isInlineTag(node2)) &&
+        myXmlFormattingPolicy.isKeepSpacesAroundInlineTags()) {
+      return Spacing.getReadOnlySpacing();
+    }
+
     if (isSpaceInText(firstIsTag, secondIsTag, firstIsText, secondIsText) && keepWhiteSpaces()) {
         return Spacing.getReadOnlySpacing();
     }
@@ -264,4 +272,48 @@ public class SyntheticBlock extends AbstractSyntheticBlock implements Block, Rea
   public Indent getChildIndent() {
     return myChildIndent;
   }
+
+  private static boolean isInlineTag(@NotNull ASTNode astNode) {
+    return astNode.getElementType() == XmlElementType.XML_TAG && isTextOnlyTag(astNode) &&
+           isTextNotEndingWithLineBreaks(astNode.getTreePrev()) && isTextNotStartingWithLineBreaks(astNode.getTreeNext());
+  }
+  
+  private static boolean isTextNotEndingWithLineBreaks(@Nullable ASTNode astNode) {
+    if (astNode != null && astNode.getElementType() == XmlElementType.XML_TEXT) {
+      ASTNode lastChild = astNode.getLastChildNode();
+      if (lastChild != null) {
+        return !(lastChild.getPsi() instanceof PsiWhiteSpace) || !CharArrayUtil.containLineBreaks(lastChild.getChars());
+      }
+    }
+    return false;
+  }
+  
+  private static boolean isTextNotStartingWithLineBreaks(@Nullable ASTNode astNode) {
+    if (astNode != null && astNode.getElementType() == XmlElementType.XML_TEXT) {
+      ASTNode firstChild = astNode.getFirstChildNode();
+      if (firstChild != null) {
+        return !(firstChild.getPsi() instanceof PsiWhiteSpace) || !CharArrayUtil.containLineBreaks(firstChild.getChars());
+      }
+    }
+    return false;
+  }
+  
+  private static boolean isTextOnlyTag(@NotNull ASTNode tagNode) {
+    ASTNode child = tagNode.getFirstChildNode();
+    boolean checkContent = false;
+    while (child != null) {
+      IElementType childType = child.getElementType();
+      if (checkContent) {
+        if (childType == XmlTokenType.XML_END_TAG_START) return true;
+        else if (childType != XmlElementType.XML_TEXT) return false;
+      }
+      else {
+        if (childType == XmlTokenType.XML_TAG_END) {
+          checkContent = true;
+        }
+      }
+      child = child.getTreeNext();
+    }
+    return false;
+  }
 }
diff --git a/xml/impl/src/com/intellij/psi/formatter/xml/XmlFormattingPolicy.java b/xml/impl/src/com/intellij/psi/formatter/xml/XmlFormattingPolicy.java
index 8ea49bf33929..c69b8565957c 100644
--- a/xml/impl/src/com/intellij/psi/formatter/xml/XmlFormattingPolicy.java
+++ b/xml/impl/src/com/intellij/psi/formatter/xml/XmlFormattingPolicy.java
@@ -161,4 +161,23 @@ public abstract class XmlFormattingPolicy {
   public void dontProcessJavaTree() {
     myProcessJavaTree = false;
   }
+
+  /**
+   * Inline tags are the ones which:
+   * <ul>
+   *   <li>Have no line breaks around them,</li>
+   *   <li>Do not contain any another nested tags.</li>
+   * </ul> F
+   * or example:
+   * <pre>
+   *   &lt;para&gt;
+   *     Some &lt;em&gt;emphasized&lt;/em&gt; text.
+   *   &lt;/para&gt;
+   * </pre>
+   * If true, spaces around such tags will be preserved, no line breaks inserted. 
+   * @return <code>false</code> by default.
+   */
+  public boolean isKeepSpacesAroundInlineTags() {
+    return false;
+  }
 }
diff --git a/xml/impl/src/com/intellij/psi/formatter/xml/XmlPolicy.java b/xml/impl/src/com/intellij/psi/formatter/xml/XmlPolicy.java
index 91cde788fd49..84fae3648590 100644
--- a/xml/impl/src/com/intellij/psi/formatter/xml/XmlPolicy.java
+++ b/xml/impl/src/com/intellij/psi/formatter/xml/XmlPolicy.java
@@ -162,4 +162,8 @@ public class XmlPolicy extends XmlFormattingPolicy{
     return false;
   }
 
+  @Override
+  public boolean isKeepSpacesAroundInlineTags() {
+    return true;
+  }
 }