I've figured this out....this was terriably simple...no need to use the xhtml mods....simply use the xhtml-basic.dtd:
http://www.w3.org/TR/xhtml-basic/xhtml-basic10.dtd
Here's an example:
I'ved included the xhtml 'p' element as a child of my defined 'para' element:
<!-- define para -->
<!ELEMENT para (p)*>
<!ELEMENT xhtml-text (p)*>
<!-- pull in w3c xhtml dtd-->
<!ENTITY % xhtml.mod
SYSTEM "xhtml.mod" >
%xhtml.mod;
and in the xhtml.mod file I've placed:
<!ENTITY % xhtml-basic.dtd PUBLIC "-//W3C//DTD XHTML Basic 1.0//EN" "http://www.w3.org/TR/xhtml-basic/xhtml-basic10.dtd" >
%xhtml-basic.dtd;
Now the 'p' element and it's subelements are avaibable for use in my para element.