ola.xsl

<?xml version="1.0"?>
<xsl:stylesheet
   xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
   version="1.0">
<xsl:output
   method="xml"
   encoding="UTF-8"
   indent="yes"/>

   <xsl:template name="ola" match="/">
      <xsl:param name="string" select="'hello world'"/>
      <xsl:param name="idx" select="1"/>
      <xsl:if test="string-length($string) &gt;= $idx">
         <xsl:element name="ola">
            <xsl:value-of select="substring($string, 0, $idx)"/>
            <xsl:value-of select="translate(
               substring($string, $idx, 1),
               'abcdefghijklmnopqrstuvwxyz',
               'ABCDEFGHIJKLMNOPQRSTUVWXYZ'
            )"/>
            <xsl:value-of select="substring($string, $idx + 1)"/>
         </xsl:element>
         <xsl:call-template name="ola">
            <xsl:with-param name="idx" select="$idx + 1"/>
         </xsl:call-template>
      </xsl:if>
   </xsl:template>

</xsl:stylesheet>

result.xml

<?xml version="1.0"?>
<ola>Hello world</ola><ola>hEllo world</ola><ola>heLlo world</ola><ola>helLo world</ola><ola>hellO world</ola><ola>hello world</ola><ola>hello World</ola><ola>hello wOrld</ola><ola>hello woRld</ola><ola>hello worLd</ola><ola>hello worlD</ola>