Index: markup/tests/template.py
===================================================================
--- markup/tests/template.py    (revision 76)
+++ markup/tests/template.py    (working copy)
@@ -411,6 +411,11 @@
         self.assertEqual(Stream.TEXT, parts[2][0])
         self.assertEqual(' baz', parts[2][1])

+    def test_interpolate_mixed3(self):
+        ctxt = Context(var=42)
+        tmpl = Template('<root> ${var} $var</root>')
+        self.assertEqual('<root> 42 42</root>', str(tmpl.generate(ctxt)))
+
     def test_interpolate_non_string_attrs(self):
         ctxt = Context()
         tmpl = Template('<root attr="${1}"/>')
Index: markup/template.py
===================================================================
--- markup/template.py  (revision 76)
+++ markup/template.py  (working copy)
@@ -765,19 +765,20 @@
         @param offset: the column number at which the text starts in the source
             (optional)
         """
-        patterns = [Template._FULL_EXPR_RE, Template._SHORT_EXPR_RE]
-        def _interpolate(text):
+        def _interpolate(text, patterns):
             for idx, group in enumerate(patterns.pop(0).split(text)):
                 if idx % 2:
                     yield EXPR, Expression(group), (lineno, offset)
                 elif group:
                     if patterns:
-                        for result in _interpolate(group):
+                        for result in _interpolate(group, patterns[:]):
                             yield result
                     else:
                         yield TEXT, group.replace('$$', '$'), (filename, lineno ,
                                                                offset)
-        return _interpolate(text)
+        return _interpolate(text, [Template._FULL_EXPR_RE,
+                                   Template._SHORT_EXPR_RE])
+
     _interpolate = classmethod(_interpolate)

     def generate(self, ctxt=None):