RE: My DTD starts like this

  <?xml version="1.0" encoding="iso-8859-1"?>
  <!--******************************************************-->
  <!--*                "commonDelivery.dtd"                *-->
  <!--******************************************************-->
  <!ENTITY % commonDeliveryVersion "1.4">

DTD documents don't have XML prologs (ie. <?xml ... ?>). I think 
you mean to put the SGML into the local DOCTYPE:

<?xml version="1.0" encoding="iso-8859-1"?>
<!DOCTYPE document [
  <!-- define foo as a paramater entity (note % sign) -->
  <!ENTITY % foo "NMTOKEN">

  <!-- define bar as a general entity -->
  <!ENTITY   bar "variable">
  
  <!ELEMENT document EMPTY>
  <!ATTLIST document Reference %foo; #REQUIRED>
]>

<document Reference="&bar;">
</document>

General entities like &bar; can be used in the XML document.
Parameter entities lie %foo; can only be used in the SGML
definitions. I wouldn't fuss with these SGML besties unless 
you can't get your problem solved using XSLT parameters
or variables.

Hope that helps.

Regards,

Dan

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