master.xml

<data>
  <people>
    <item id='1'>Fred</item>
    <item id='2'>Jane</item>
    <item id='3'>Bob</item>
    <item id='4'>Mary</item>
    <item id='6'>Tom</item>
  </people>
  <people-details>
    <entry id='1'>
      <name>Fred</name>
      <show>Yes</show>
    </entry>
    <entry id='2'>
      <name>Jane</name>
      <show>No</show>
    </entry>
    <entry id='3'>
      <name>Bob</name>
      <show>Yes</show>
    </entry>
    <entry id='4'>
      <name>Mary</name>
      <show>No</show>
    </entry>
    <entry id='5'>
      <name>Max</name>
      <show>Yes</show>
    </entry>
    <entry id='6'>
      <name>Tom</name>
      <show>Yes</show>
    </entry>
  </people-details>
</data>

master.xsl

<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform" version="1.0" xmlns:exsl="http://exslt.org/common" extension-element-prefixes="exsl">

  <xsl:output method="xml" indent="yes" />

  <xsl:template match="/">
    <data>
      <xsl:variable name='folks'>
        <xsl:for-each select='data/people/item'>
          <xsl:copy-of select='/data/people-details/entry[@id = current()/@id and show = "Yes"]' />
        </xsl:for-each>
      </xsl:variable>
      
      <xsl:apply-templates select='exsl:node-set($folks)/entry[position() &lt; 3]' mode='show-people' />
    </data>
  </xsl:template>

  <xsl:template match="entry" mode='show-people'>
    <name>
      <xsl:value-of select='name' />
    </name>
  </xsl:template>
  
</xsl:stylesheet>