Cosmetic sorting

<policy-rules>
  <fw-rule-order>
     fwrule3
     fwrule1
     fwrule2
  </fw-rule-order>
  <fw-rules>
     <rule name="fwrule1">
        <direction>out</direction>
        <action>pass<action>
        <remote>192.168.129.31</remote>
        <local>192.168.129.67</local>
     </rule>
     <rule name="fwrule2">
        <direction>in</direction>
        <action>drop<action>
        <remote>192.168.129.32</remote>
        <local>192.168.129.67</local>
     </rule>
     <rule name="fwrule3">
        <direction>out</direction>
        <action>pass<action>
        <remote>192.168.129.33</remote>
        <local>192.168.129.67</local>
     </rule>
  </fw-rules>
</policy-rules>

XML transformation in XSLT 1.0
<!-- Global variables -->
<xsl:variable name="rule-order">
  <xsl:value-of select="normalize-space(/policy-rules/fw-rule-order)"/>
</xsl:variable>

<xsl:template match="/">
  <policy>
     <xsl:apply-templates select="//fw-rules/rule"/>
  </policy>
</xsl:template>

<xsl:template match="//fw-rules/rule">
  <xsl:variable name="precedence">
     <xsl:call-template name="determineprecedence">
        <xsl:with-param name="string" select="$rule-order"/>
        <xsl:with-param name="value" select="@name"/>
     </xsl:call-template>
  </xsl:variable>
  <rule type="{action}" precedence="{$precedence}">}">
      <xsl:choose>
         <xsl:when test="direction='in'">
            <src>
               <xsl:apply-templates select="remote"/>
            </src>
            <dst>
               <xsl:apply-templates select="local"/>
            </dst>
         </xsl:when>
         <xsl:otherwise>
            <src>
               <xsl:apply-templates select="local"/>
            </src>
            <dst>
               <xsl:apply-templates select="remote"/>
            </dst>
         </xsl:otherwise>
      </xsl:choose>
  </rule>
</xsl:template>

<xsl:template match="remote">
  <xsl:value-of select="."/>
</xsl:template>

<xsl:template match="local">
  <xsl:value-of select="."/>
</xsl:template>

<!-- Named templates -->
<xsl:template name="determineprecedence">
  <xsl:param name="string"/>
  <xsl:param name="value"/>
  <!-- Returns the precedence of the rule -->
</xsl:template>

Output without sorting, after XSLT processor recursion:
<policy>
 <rule type="pass" precedence="1">
    <src>192.168.129.67</src>
    <dst>192.168.129.31</dst>
 </rule>
 <rule type="drop" precedence="2">
    <src>192.168.129.32</src>
    <dst>192.168.129.67</dst>
 </rule>
 <rule type="pass" precedence="0">
    <src>192.168.129.67</src>
    <dst>192.168.129.33</dst>
 </rule>
</policy>

Desired output:
<policy>
 <rule type="pass" precedence="0">
    <src>192.168.129.67</src>
    <dst>192.168.129.33</dst>
 </rule>
 <rule type="pass" precedence="1">
    <src>192.168.129.67</src>
    <dst>192.168.129.31</dst>
 </rule>
 <rule type="drop" precedence="2">
    <src>192.168.129.32</src>
    <dst>192.168.129.67</dst>
 </rule>
</policy>