Here's how to do your task in XML::XSH2, a wrapper around XML::LibXML I happen to maintain:

open file.xml ;
for my $b in //blockquote[count(p)=1] {
    my $texts = xsh:split("\n\n", $b/p) ;
     if (count($texts) > 1) {
        for my $text in $texts {
            my $p := insert element p append $b ;
            insert text normalize-space($text) into $p ;
        }
        rm $b/p[1] ;
    }
}
save :b ;
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