Index: src/java/org/apache/fop/layoutmgr/inline/InlineLayoutManager.java
===================================================================
--- src/java/org/apache/fop/layoutmgr/inline/InlineLayoutManager.java	(revision 1050409)
+++ src/java/org/apache/fop/layoutmgr/inline/InlineLayoutManager.java	(working copy)
@@ -48,6 +48,7 @@
 import org.apache.fop.layoutmgr.BreakElement;
 import org.apache.fop.layoutmgr.InlineKnuthSequence;
 import org.apache.fop.layoutmgr.KnuthBox;
+import org.apache.fop.layoutmgr.KnuthElement;
 import org.apache.fop.layoutmgr.KnuthSequence;
 import org.apache.fop.layoutmgr.LayoutContext;
 import org.apache.fop.layoutmgr.LayoutManager;
@@ -74,7 +75,6 @@
     private CommonMarginInline inlineProps = null;
     private CommonBorderPaddingBackground borderProps = null;
 
-    private boolean areaCreated = false;
     private LayoutManager lastChildLM = null; // Set when return last breakposs;
 
     private Position auxiliaryPosition;
@@ -96,6 +96,8 @@
 
     private AlignmentContext alignmentContext = null;
 
+    private KnuthElement firstKnuthElement = null;
+
     /**
      * Create an inline layout manager.
      * This is used for fo's that create areas that
@@ -396,9 +398,30 @@
             }
         }
 
-        return returnList.isEmpty() ? null : returnList;
+        boolean isEmpty = returnList.isEmpty();
+
+        if (!isEmpty) {
+            storeFirstKnuthElement((List)returnList.get(0));
+        }
+
+        return isEmpty ? null : returnList;
     }
 
+    private void storeFirstKnuthElement(List knuthSequence) {
+        firstKnuthElement = knuthSequence.isEmpty() ? null : (KnuthElement)knuthSequence.get(0);
+    }
+
+    private boolean isDescendantPosition(KnuthElement ke, Position position) {
+        Position pos = ke.getPosition();
+        while (pos instanceof NonLeafPosition && pos != null) {
+            if (pos == position) {
+                return true;
+            }
+            pos = pos.getPosition();
+        }
+        return false;
+    }
+
     /**
      * Generate and add areas to parent area.
      * Set size of each area. This should only create and return one
@@ -415,18 +438,8 @@
 
         setChildContext(new LayoutContext(context)); // Store current value
 
-        // If this LM has fence, make a new leading space specifier.
-        if (hasLeadingFence(areaCreated)) {
-            getContext().setLeadingSpace(new SpaceSpecifier(false));
-            getContext().setFlags(LayoutContext.RESOLVE_LEADING_SPACE, true);
-        } else {
-            getContext().setFlags(LayoutContext.RESOLVE_LEADING_SPACE, false);
-        }
+        boolean areaCreated = firstKnuthElement != null;
 
-        if (getSpaceStart() != null) {
-            context.getLeadingSpace().addSpace(new SpaceVal(getSpaceStart(), this));
-        }
-
         // "Unwrap" the NonLeafPositions stored in parentIter and put
         // them in a new list.  Set lastLM to be the LayoutManager
         // which created the last Position: if the LAST_AREA flag is
@@ -434,17 +447,35 @@
         // layout context given to lastLM, but must be cleared in the
         // layout context given to the other LMs.
         List positionList = new LinkedList();
-        NonLeafPosition pos;
+        Position pos;
         LayoutManager lastLM = null; // last child LM in this iterator
         Position lastPos = null;
         while (parentIter.hasNext()) {
-            pos = (NonLeafPosition) parentIter.next();
+            if ((parentIter.peekNext() instanceof KnuthElement
+                    && parentIter.peekNext() == firstKnuthElement)
+                    || (parentIter.peekNext() instanceof Position)
+                    && isDescendantPosition(firstKnuthElement, (Position)parentIter.peekNext()))
+                areaCreated = false;
+            pos = (Position) parentIter.next();
             if (pos != null && pos.getPosition() != null) {
                 positionList.add(pos.getPosition());
                 lastLM = pos.getPosition().getLM();
                 lastPos = pos;
             }
         }
+
+        // If this LM has fence, make a new leading space specifier.
+        if (hasLeadingFence(areaCreated)) {
+            getContext().setLeadingSpace(new SpaceSpecifier(false));
+            getContext().setFlags(LayoutContext.RESOLVE_LEADING_SPACE, true);
+        } else {
+            getContext().setFlags(LayoutContext.RESOLVE_LEADING_SPACE, false);
+        }
+
+        if (getSpaceStart() != null) {
+            context.getLeadingSpace().addSpace(new SpaceVal(getSpaceStart(), this));
+        }
+
         /*if (pos != null) {
             lastLM = pos.getPosition().getLM();
         }*/
@@ -537,6 +568,7 @@
         addKnuthElementsForBorderPaddingStart(returnedList);
         returnedList.addAll(super.getChangedKnuthElements(oldList, alignment));
         addKnuthElementsForBorderPaddingEnd(returnedList);
+        storeFirstKnuthElement(returnedList);
         return returnedList;
     }