Index: test/java/org/apache/ivy/core/resolve/ResolveTest.java
===================================================================
--- test/java/org/apache/ivy/core/resolve/ResolveTest.java	(revision 628255)
+++ test/java/org/apache/ivy/core/resolve/ResolveTest.java	(working copy)
@@ -237,6 +237,24 @@
         assertTrue(report.hasError());
     }
 
+    public void testResolveWithXmlEntities() throws Exception {
+        Ivy ivy = new Ivy();
+        Throwable th = null;
+        try
+        {
+            ivy.configure(new File("test/repositories/xml-entities/ivysettings.xml").toURL());
+            ResolveReport report = ivy.resolve(new File("test/repositories/xml-entities/ivy.xml").toURL(),
+                getResolveOptions(new String[] {"*"}));
+            assertNotNull(report);
+            assertFalse(report.hasError());
+        }
+        catch(Throwable e)
+        {
+            th = e;
+        }
+        assertNull(th);
+    }
+
     public void testResolveNoRevisionInPattern() throws Exception {
         // module1 depends on latest version of module2, for which there is no revision in the
         // pattern
Index: test/repositories/xml-entities/foo.txt
===================================================================
--- test/repositories/xml-entities/foo.txt	(revision 0)
+++ test/repositories/xml-entities/foo.txt	(revision 0)
@@ -0,0 +1,3 @@
+    <dependencies>
+        <dependency conf="myconf->*" org="myorg" name="module2" rev="latest.integration" />
+    </dependencies>
Index: test/repositories/xml-entities/bar.txt
===================================================================
--- test/repositories/xml-entities/bar.txt	(revision 0)
+++ test/repositories/xml-entities/bar.txt	(revision 0)
@@ -0,0 +1 @@
+    <settings defaultResolver="myresolver"/>
Index: test/repositories/xml-entities/ivy.xml
===================================================================
--- test/repositories/xml-entities/ivy.xml	(revision 0)
+++ test/repositories/xml-entities/ivy.xml	(revision 0)
@@ -0,0 +1,29 @@
+<!--
+   Licensed to the Apache Software Foundation (ASF) under one
+   or more contributor license agreements.  See the NOTICE file
+   distributed with this work for additional information
+   regarding copyright ownership.  The ASF licenses this file
+   to you under the Apache License, Version 2.0 (the
+   "License"); you may not use this file except in compliance
+   with the License.  You may obtain a copy of the License at
+
+     http://www.apache.org/licenses/LICENSE-2.0
+
+   Unless required by applicable law or agreed to in writing,
+   software distributed under the License is distributed on an
+   "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+   KIND, either express or implied.  See the License for the
+   specific language governing permissions and limitations
+   under the License.
+-->
+<!DOCTYPE ivy-module [
+       <!ENTITY foo SYSTEM "foo.txt">
+]>
+<ivy-module version="1.3">
+    <info organisation="myorg" module="moduleB" revision="1.0"/>
+    <configurations>
+    	<conf name="myconf"/>
+    </configurations>
+    <publications/>
+    &foo;
+</ivy-module>
Index: test/repositories/xml-entities/module1/ivy-1.0.xml
===================================================================
--- test/repositories/xml-entities/module1/ivy-1.0.xml	(revision 0)
+++ test/repositories/xml-entities/module1/ivy-1.0.xml	(revision 0)
@@ -0,0 +1,25 @@
+<!--
+   Licensed to the Apache Software Foundation (ASF) under one
+   or more contributor license agreements.  See the NOTICE file
+   distributed with this work for additional information
+   regarding copyright ownership.  The ASF licenses this file
+   to you under the Apache License, Version 2.0 (the
+   "License"); you may not use this file except in compliance
+   with the License.  You may obtain a copy of the License at
+
+     http://www.apache.org/licenses/LICENSE-2.0
+
+   Unless required by applicable law or agreed to in writing,
+   software distributed under the License is distributed on an
+   "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+   KIND, either express or implied.  See the License for the
+   specific language governing permissions and limitations
+   under the License.
+-->
+<ivy-module version="1.3">
+    <info organisation="myorg" module="module1" revision="1.0"/>
+    <configurations>
+    	<conf name="myconf"/>
+    </configurations>
+    <publications/>
+</ivy-module>
Index: test/repositories/xml-entities/ivysettings.xml
===================================================================
--- test/repositories/xml-entities/ivysettings.xml	(revision 0)
+++ test/repositories/xml-entities/ivysettings.xml	(revision 0)
@@ -0,0 +1,33 @@
+<!--
+   Licensed to the Apache Software Foundation (ASF) under one
+   or more contributor license agreements.  See the NOTICE file
+   distributed with this work for additional information
+   regarding copyright ownership.  The ASF licenses this file
+   to you under the Apache License, Version 2.0 (the
+   "License"); you may not use this file except in compliance
+   with the License.  You may obtain a copy of the License at
+
+     http://www.apache.org/licenses/LICENSE-2.0
+
+   Unless required by applicable law or agreed to in writing,
+   software distributed under the License is distributed on an
+   "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+   KIND, either express or implied.  See the License for the
+   specific language governing permissions and limitations
+   under the License.    
+-->
+<!DOCTYPE ivysettings [
+       <!ENTITY bar SYSTEM "bar.txt">
+]>
+<ivysettings>
+    &bar;
+    <resolvers>
+        <url name="myresolver">
+            <ivy pattern="${ivy.settings.dir}/[module]/ivy-[revision].xml"/>
+            <artifact pattern="${ivy.settings.dir}/[module]/[artifact]-[revision].[ext]"/>
+        </url>
+    </resolvers>
+    <modules>
+        <module organisation="myorg" name=".*" resolver="myresolver"/>
+    </modules>
+</ivysettings>
Index: test/repositories/xml-entities/module2/ivy-2.0.xml
===================================================================
--- test/repositories/xml-entities/module2/ivy-2.0.xml	(revision 0)
+++ test/repositories/xml-entities/module2/ivy-2.0.xml	(revision 0)
@@ -0,0 +1,28 @@
+<!--
+   Licensed to the Apache Software Foundation (ASF) under one
+   or more contributor license agreements.  See the NOTICE file
+   distributed with this work for additional information
+   regarding copyright ownership.  The ASF licenses this file
+   to you under the Apache License, Version 2.0 (the
+   "License"); you may not use this file except in compliance
+   with the License.  You may obtain a copy of the License at
+
+     http://www.apache.org/licenses/LICENSE-2.0
+
+   Unless required by applicable law or agreed to in writing,
+   software distributed under the License is distributed on an
+   "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+   KIND, either express or implied.  See the License for the
+   specific language governing permissions and limitations
+   under the License.    
+-->
+<ivy-module version="1.3">
+    <info organisation="myorg" module="module2" revision="2.0"/>
+    <configurations>
+    	<conf name="myconf"/>
+    </configurations>
+    <publications/>
+    <dependencies>
+        <dependency conf="myconf->*" org="myorg" name="module1" rev="1.0" />
+    </dependencies>
+</ivy-module>