<xsl:variable name="fulltarget" as="xs:string">
    <xsl:call-template name="encode-url">

if you don't mind the named template returning a sequence just use 
 as="xs:string*"

or use

  <xsl:variable name="fulltarget" as="xs:string">
  <xsl:value-of>
    <xsl:call-template name="encode-url">
   </xsl:call-template>
  </xsl:value-of>
  </xsl:variable>

David

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