#!/usr/bin/perl -w
use strict; 

use XML::Twig;

XML::Twig->new( # process just list elements
                twig_roots => { list => \&process_list },
                # output the rest as is
                twig_print_outside_roots => 1,
              )
         ->parse( \*DATA);

sub process_list
  { my( $t, $list)= @_;
    # wrap (non-empty) lines in a listitem element
    my @listitems= $list->split( qr/(^.+)\n/m => 'listitem');
    # add the p and extract tags within each listitem
    foreach my $listitem (@listitems)
      { $listitem->insert( 'p', 'extract'); }
    $list->print ;
  }

__DATA__
<extract>
<line>
<p>
<extract>
<show>
<list>
first item
second item
third item
</list>
</show>
</extract>
</p>
</line>
</extract>