diff --git a/xml/impl/src/com/intellij/codeInsight/completion/XmlSmartCompletionProvider.java b/xml/impl/src/com/intellij/codeInsight/completion/XmlSmartCompletionProvider.java
index 95bfae259b38..b2f7936299eb 100644
--- a/xml/impl/src/com/intellij/codeInsight/completion/XmlSmartCompletionProvider.java
+++ b/xml/impl/src/com/intellij/codeInsight/completion/XmlSmartCompletionProvider.java
@@ -52,13 +52,10 @@ public class XmlSmartCompletionProvider {
           if (subTag == tag) {
             break;
           }
-          XmlElementDescriptor childDescriptor = subTag.getDescriptor();
-          if (childDescriptor != null) {
-            dfa.transition(childDescriptor, subTag);
-          }
+          dfa.transition(subTag);
         }
         List<XmlElementDescriptor> elements = dfa.getPossibleElements();
-        for (XmlElementDescriptor elementDescriptor : elements) {
+        for (XmlElementDescriptor elementDescriptor: elements) {
           addElementToResult(elementDescriptor, result);
         }
       }
diff --git a/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFA.java b/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFA.java
index 0c672f506f36..448ce5214f3c 100644
--- a/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFA.java
+++ b/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFA.java
@@ -29,7 +29,7 @@ public abstract class XmlContentDFA {
 
   public abstract List<XmlElementDescriptor> getPossibleElements();
 
-  public abstract void transition(@NotNull XmlElementDescriptor element, XmlTag xmlTag);
+  public abstract void transition(XmlTag xmlTag);
 
   @Nullable
   public static XmlContentDFA getContentDFA(XmlTag parentTag) {
diff --git a/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFAImpl.java b/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFAImpl.java
index 1faee65bf693..3c4b859aa3f1 100644
--- a/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFAImpl.java
+++ b/xml/impl/src/com/intellij/psi/impl/source/xml/XmlContentDFAImpl.java
@@ -90,8 +90,11 @@ class XmlContentDFAImpl extends XmlContentDFA {
   }
 
   @Override
-  public void transition(@NotNull XmlElementDescriptor element, XmlTag xmlTag) {
-    doTransition(element);
+  public void transition(XmlTag xmlTag) {
+    XmlElementDescriptor descriptor = xmlTag.getDescriptor();
+    if (descriptor != null) {
+      doTransition(descriptor);
+    }
   }
 
   private Result doTransition(@NotNull XmlElementDescriptor element) {
diff --git a/xml/impl/src/com/intellij/psi/impl/source/xml/XsContentDFA.java b/xml/impl/src/com/intellij/psi/impl/source/xml/XsContentDFA.java
index 53d709b86a5e..8fc66ab1361d 100644
--- a/xml/impl/src/com/intellij/psi/impl/source/xml/XsContentDFA.java
+++ b/xml/impl/src/com/intellij/psi/impl/source/xml/XsContentDFA.java
@@ -119,7 +119,7 @@ class XsContentDFA extends XmlContentDFA {
   }
 
   @Override
-  public void transition(@NotNull XmlElementDescriptor element, XmlTag xmlTag) {
+  public void transition(XmlTag xmlTag) {
     myContentModel.oneTransition(createQName(xmlTag), myState, myHandler);
   }
 
diff --git a/xml/impl/src/com/intellij/xml/actions/GenerateXmlTagAction.java b/xml/impl/src/com/intellij/xml/actions/GenerateXmlTagAction.java
index 0ba9355868ab..1f5c9fde3008 100644
--- a/xml/impl/src/com/intellij/xml/actions/GenerateXmlTagAction.java
+++ b/xml/impl/src/com/intellij/xml/actions/GenerateXmlTagAction.java
@@ -40,6 +40,7 @@ import com.intellij.psi.PsiFile;
 import com.intellij.psi.XmlElementFactory;
 import com.intellij.psi.impl.source.tree.Factory;
 import com.intellij.psi.impl.source.tree.LeafElement;
+import com.intellij.psi.impl.source.xml.XmlContentDFA;
 import com.intellij.psi.util.PsiTreeUtil;
 import com.intellij.psi.xml.*;
 import com.intellij.refactoring.util.CommonRefactoringUtil;
@@ -91,16 +92,9 @@ public class GenerateXmlTagAction extends SimpleCodeInsightAction {
             protected void run() {
               if (selected == null) return;
               XmlTag newTag = createTag(contextTag, selected);
-              int offset = editor.getCaretModel().getOffset();
-              PsiElement element = file.findElementAt(offset);
-              if (element != null) {
-                XmlText xmlText = PsiTreeUtil.getParentOfType(element, XmlText.class);
-                if (xmlText != null) {
 
-                }
-              }
-
-              newTag = contextTag.addSubTag(newTag, false);
+              PsiElement anchor = getAnchor(contextTag, editor, selected);
+              newTag = anchor == null ? contextTag.addSubTag(newTag, true) : (XmlTag)contextTag.addAfter(newTag, anchor);
               generateTag(newTag);
             }
           }.execute();
@@ -135,6 +129,34 @@ public class GenerateXmlTagAction extends SimpleCodeInsightAction {
     }
   }
 
+  @Nullable
+  private static PsiElement getAnchor(XmlTag contextTag, Editor editor, XmlElementDescriptor selected) {
+    XmlContentDFA contentDFA = XmlContentDFA.getContentDFA(contextTag);
+    PsiElement anchor = null;
+    int offset = editor.getCaretModel().getOffset();
+    if (contentDFA != null) {
+      for (XmlTag subTag : contextTag.getSubTags()) {
+        if (contentDFA.getPossibleElements().contains(selected)) {
+          if (subTag.getTextOffset() > offset) {
+            break;
+          }
+          anchor = subTag;
+        }
+        contentDFA.transition(subTag);
+      }
+    }
+    if (anchor == null) {  // insert it at caret position
+      PsiElement[] children = contextTag.getChildren();
+      for (PsiElement child : children) {
+        if (child.getTextOffset() > offset) {
+          break;
+        }
+        anchor = child;
+      }
+    }
+    return anchor;
+  }
+
   public static void generateTag(XmlTag newTag) {
     newTag = generateRaw(newTag);
     newTag = CodeInsightUtilBase.forcePsiPostprocessAndRestoreElement(newTag);