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Is there a reason this is the case? I would like to send the :encoding option to the Nokogiri::XML::Builder initializer.
The reason for this is that the call to Nokogiri::XML::Builder.new is inlined and compiled so there's no easy way to send options there. You can however pass in a local variable called xml and Tilt will use that object:
tmpl = Tilt.new('index.nokogiri')
tmpl.render(Object.new, :xml => Nokogiri::XML::Builder.new(:encoding => …))