The recipes I've seen have an inner eval block and a second alarm(0). Paraphrasing, the inner eval is to trap any exception from your long process, which otherwise might pop you out of the outer eval with the alarm still pending; and the second alarm reset is for the slim chance of an exception occurring after the inner eval, but before the first alarm reset.

See the three new lines below. I haven't tested this, but does it work?

use strict;
use warnings;
use XML::LibXML;

my $html = do { local $/; <> };

my $libxml = XML::LibXML->new();
#$libxml->recover(2);

eval {
    local $SIG{ALRM} = sub { die "TIMEOUT\n" };
    alarm(10);
    eval {  ######
       $libxml->parse_html_string($html);
    };      ######
    alarm(0);
};
alarm(0);   ######
if ($@ and $@ eq "TIMEOUT\n") {
    warn "Timed out ok.\n";
} elsif ($@) {
    die $@;
}
[download]