XSLT Nested List Problem

[PeOpLesChAmP]

Hi, I'm new to XSLT and i was hoping someone could point me in the right direction with the problem below...

I have the following XML:

<list level="1">
    <item>1</item>
           <list level="2">
                 <item>1</item>
                 <item>2</item>
                 <item>3</item>
           </list>
     <item>2</item>
</list>

I would like to extract the nested list and insert it between item 1 and 2 of the parent list:

<list level="1">
     <item>1</item>
</list>
<list level="1">
     <item>1</item>
     <item>2</item>
     <item>3</item>
</list>
<list level="1">
     <item>2</item>
</list>

Any suggestions?