If you can act on the xml generation, you could replace the
which will be read as a carriage return as long as it's not in a leading nor a trailing location (or it might be removed during the import if remove white space option is enabled).
Otherwise you can of course choose to modify it trough XSL or scripting. I am not sure if there is a "better than the other" option. Probably a matter of "as you feel the most with".
Does that code <2029> appear in your InDesign document, or doesn't it import?
If it does, you can add a find/change to the end of your import script and replace it with a proper hard return.
I use the string
for line breaks within InDesign. It seems it works best.
I replaced <br> within CDATA of my XML to
in separate XSLT routine.