Re: Combining lists without duplication

not sure I got all your ules 100% but something like

<xsl:stylesheet version="2.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
  
<xsl:output encoding="US-ASCII" indent="yes"/>

<xsl:variable name="f2" select="doc('sub2.xml')"/>
<xsl:key name="a" match="subdiv" use="@fips"/>


<xsl:template match="subdiv">
<xsl:variable name="a" select="key('a',@fips,$f2)"/>
<xsl:copy>
  <xsl:copy-of select="@*"/>
  <basename>
    <name>
      <xsl:value-of select="($a[@nt='N']/@short-name,basename/name1)[1]"/>
    </name>
    <xsl:apply-templates select="$a[@nt='N']/(@bgn-name,@bgn-name-nd)"/>
  </basename>
  <other-names>
    <xsl:for-each-group  select="basename/*,$a[@nt='V']/(@bgn-name,@bgn-name-nd)[not(.=$a[@nt='N']/@*)]"
			 group-by=".">
      <xsl:apply-templates select="."/>
    </xsl:for-each-group>
  </other-names>
</xsl:copy>
</xsl:template>

<xsl:template match="subdiv[@nt='N']/@bgn-name">
  <long-form><xsl:value-of select="."/></long-form>
</xsl:template>

<xsl:template match="subdiv[@nt='N']/@bgn-name-nd">
  <long-form-nd><xsl:value-of select="."/></long-form-nd>
</xsl:template>

<xsl:template match="subdiv[@nt='V']/@*">
  <bgn-variant><xsl:value-of select="."/></bgn-variant>
</xsl:template>

<xsl:template match="basename[1]/*">
  <alt-name><xsl:value-of select="."/></alt-name>
</xsl:template>

<xsl:template match="basename[2]/*">
  <iso-name><xsl:value-of select="."/></iso-name>
</xsl:template>


</xsl:stylesheet>

where the main input (sub1.xml)  is your first file and sub2.xml is your
second

$ saxon8 sub1.xml sub.xsl
<?xml version="1.0" encoding="US-ASCII"?>
<subdiv fips="AF13">
   <basename>
      <name>K&#129;&#224;bol</name>
      <long-form>Vel&#129;&#224;yat-e K&#129;&#224;bol</long-form>
      <long-form-nd>Velayat-e Kabol</long-form-nd>
   </basename>
   <other-names>
      <alt-name>Kabul</alt-name>
      <alt-name>Kaboul</alt-name>
      <alt-name>K&#129;&#224;bul</alt-name>
      <alt-name>Kabol</alt-name>
      <iso-name>K&#129;&#224;bol</iso-name>
      <bgn-variant>Vel&#129;&#224;yat-e K&#129;&#224;bul</bgn-variant>
      <bgn-variant>Velayat-e Kabul</bgn-variant>
      <bgn-variant>Kabul Province</bgn-variant>
   </other-names>
</subdiv>

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