parameter lost in tunnel?

Hi List,

I've been struggling for more hours than I care to admit on a simple task - passing a parameter through a series of templates using tunnel="yes". For some reason my parameter seems to be lost along the way and inevitably ends up with the default value (0).
 
In the abbreviated "sect_break" template below=2C the param "prev_depth" should start out at 0 then be set to 1 as it's passed through apply-templates the first time. But the next time sect_break is called prev_depth is 0 (or whatever default is specified in the param's select):

<xsl:stylesheet version="2.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform"; xmlns:xs="http://www.w3.org/2001/XMLSchema"; xmlns:fn="http://www.w3.org/2005/xpath-functions";>
    <xsl:output method="xml" version="1.0" encoding="UTF-8" indent="yes"/>
    <xsl:template match="/">
            <xsl:apply-templates/>
    </xsl:template>
        
    <xsl:template match="sect_break">
        <!-- prev_depth is the depth that we were at before encountering this sect_break -->
        <xsl:param name="prev_depth" select="0" tunnel="yes"/>
        <!-- depth is the depth indicated in the current sect_break -->
        <xsl:variable name="depth" select="./@depth" as="xs:integer"/>
        <xsl:variable name="direction" select="$depth - $prev_depth" as="xs:integer"/>
        <xsl:choose>
            <xsl:when test="$direction &gt; 0">
                <!-- going deeper in depth -->
                sect_break depth=<xsl:value-of select="$depth"/>
                <xsl:apply-templates>
                    <xsl:with-param name="prev_depth" select="$depth" tunnel="yes" />
                </xsl:apply-templates>
            </xsl:when>
            <!-- some other cases have been omitted for brevity -->
        </xsl:choose>
    </xsl:template>
    
</xsl:stylesheet>

Sample input:
<doc>
    <sect_break depth="1"/>
    <sect_break depth="2"/>
    <sect_break depth="2"/>
    <sect_break depth="3"/>
    <sect_break depth="1"/>
</doc>

(fwiw, the objective is to create a nested hierarchy from one that is defined unnested. eg:

<level 1>
<level 2>
<level 2>
<level 3>
<level 1>

becomes:

<level 1>
    <level 2>
    </level>
    <level 2>
        <level 3>
        </level>
    </level>
</level>
<level 1>
</level>
)

Thanks very much for any help!
 
--Tom