#!/usr/bin/perl
use strict;
use warnings;
while (<DATA>)  {
chomp;
if($_ !~ /^{/){
    $_ =~ s/\\//gi;
    chomp;
    print "$_ ";
              }
}

__DATA__
{AUTHOR}
author1
staff1
{HEADLINE}
DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST\
STYLE AT A SPEED
USUALLY ASSOCIATED WITH WARDROBE ITEMS.
[download]

#!/usr/bin/perl
use strict;
use warnings;

my $fh;
my $tag;
 my %hash;
my @metadata_tags;
my $flag;

while (<DATA>)  {
    chomp $_;
    if(/^{(.*)}/) {
        $tag = $1;
push(@metadata_tags,$tag);
    } else {
        if($tag eq 'FILE') {
                if(defined($fh)){
                print $fh "</ROOT>";
                close($fh);
                }
 my $filename = $_;
            open($fh, '>', "$filename.xml") or die "$filename: $!";
            print $fh '<?xml version="1.0"?>',"\n";
            print $fh "<ROOT>\n";
            print $fh "<FILE>$filename</FILE>\n";
        } elsif(defined($fh)) {
if($_ ne ''){
if($_ !~ m/^{/){
$_ =~ s/\\//gi;
    chomp;
            print "<$tag>$_</$tag>\n";
 #               }
        }
        }
    }
}
}

__DATA__
{FILE}
sourcetag1
{NUMBER}
00000
11111
{SOURCE}
source1
{KEYWORD}
{AUTHOR}
author1 staff1
{HEADLINE}
DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST\
STYLE AT A SPEED USUALLY ASSOCIATED WITH WARDROBE ITEMS.
{FILE}
sourcetag2
{NUMBER}
00002
{SOURCE}
sourcenam2
{KEYWORD}
{AUTHOR}
author2 staff2
[download]

But this produces output like this

<NUMBER>00000</NUMBER>
<NUMBER>11111</NUMBER>
<SOURCE>source1</SOURCE>
<AUTHOR>author1 staff1</AUTHOR>
<HEADLINE>DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST</HEADLINE>
<HEADLINE>STYLE AT A SPEED USUALLY ASSOCIATED WITH WARDROBE ITEMS.</HE
+ADLINE>
<NUMBER>00002</NUMBER>
<SOURCE>sourcenam2</SOURCE>
<AUTHOR>author2 staff2</AUTHOR>
[download]

Instead of

<NUMBER>00000</NUMBER>
<NUMBER>11111</NUMBER>
<SOURCE>source1</SOURCE>
<AUTHOR>author1 staff1</AUTHOR>
<HEADLINE>DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST STYLE AT A SPE
+ED USUALLY ASSOCIATED WITH WARDROBE ITEMS.</HEADLINE>
<NUMBER>00002</NUMBER>
<SOURCE>sourcenam2</SOURCE>
<AUTHOR>author2 staff2</AUTHOR>
[download]

Please anyone help me

That's good. Looks like it works as designed.

If you want to do special things when \ appears at the end of a line, then you should recognize it and do special things.

You are only removing it from the line and then go on with the standard action...

Consider something like this:

#!/usr/bin/perl
use strict;
use warnings;

my $output = '';

LINE: while ( my $line = <DATA>)  {

    chomp $line;

    # if line ended with a '\', remove '\' and save line for later out
+put
    if ( $line =~ s/\\$// ) {
        # clean indentation
        $line =~ s/^\s+/ /;
        # save line
        $output .= $line;
        next LINE;
    }
    # we have previous line(s) to consider?
    elsif ( length $output ) {
        # clean indentation
        $line =~ s/^\s+/ /;

        $line = $output . $line;
        $output = '';
    }

    print $line, $/;
}


__DATA__
{FILE}
sourcetag1
{NUMBER}
00000
11111
{SOURCE}
source1
{KEYWORD}
{AUTHOR}
author1 staff1
{HEADLINE}
DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST\
               STYLE AT A SPEED USUALLY ASSOCIATED WITH WARDROBE ITEMS
+.
{FILE}
sourcetag2
{NUMBER}
00002
{SOURCE}
sourcenam2
{KEYWORD}
{AUTHOR}
author2 staff2
a\
    b\
    c
[download]

It's your exercise to combine this with your code ;o)

BTW: why do you use the /i modifier, when replacing spaces, newlines or the backslash?

#!/usr/bin/perl

use strict;

local $/ = '{';

while( <DATA>) {
    next if /^{/;
    s/\n|{/ /g;
    print "{$_\n";
}

__DATA__
{AUTHOR}
author1
staff1
{HEADLINE}
DISPOSABLE DECOR: THE CUTTING EDGE DULLS FAST\
STYLE AT A SPEED
USUALLY ASSOCIATED WITH WARDROBE ITEMS.
[download]

while (<DATA>)  {
chomp($_);
print "$_";
}
[download]