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Something like this (insofar as I understand your input) can be done as a command line one-liner, but it gets messy and I prefer to write a script for it, something like
    perl print-chunks.pl  < input.file  > output.file
that might look like (untested | semi-tested):

use strict;
use warnings;

my $rx_start = qr{ \A \s* PATTERN1 }xms;
my $rx_stop  = qr{ \A \s* PATTERN3 }xms;

my @records;

RECORD:
while (my $record = <STDIN>) {

    if ($record =~ $rx_start) {
      # push @records, $record;  # UPDATE: NO: still "greedy" extracti
+on of records/lines
        @records = $record;      # UPDATE: FIXED: only extracts BETWEE
+N start/stop patterns
        next RECORD;
        }

    if ($record =~ $rx_stop) {
        print @records, $record;
        @records = ();
        next RECORD;
        }

    push @records, $record if @records;

    }

exit;
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Update: Example code fixed to extract records only between the start/stop patterns. Any reformatting of output that may be needed is still not addressed.