Index: test/lexer.py
===================================================================
--- test/lexer.py	(revision 302)
+++ test/lexer.py	(working copy)
@@ -226,6 +226,22 @@
         """
         nodes = Lexer(template).parse()
         assert repr(nodes) == r"""TemplateNode({}, [Text(u'\n        \n            ', (1, 1)), Expression(u"hello + '''heres '{|}' text | | }''' ", ['escape1'], (3, 13)), Text(u'\n        ', (3, 62))])"""
+        
+    def test_embedded_braces(self):
+        template = """
+        
+            ${{1:1}[0]}
+        """
+        nodes = Lexer(template).parse()
+        assert repr(nodes) == r"""TemplateNode({}, [Text(u'\n        \n            ', (1, 1)), Expression(u'{1:1}[0]', [], (3, 13)), Text(u'\n        ', (3, 24))])"""
+        
+        template = """
+        
+            ${{'a':'}',
+                'b':'{'}[0]}
+        """
+        nodes = Lexer(template).parse()
+        assert repr(nodes) == r"""TemplateNode({}, [Text(u'\n        \n            ', (1, 1)), Expression(u"{'a':'}',\n                'b':'{'}[0]", [], (3, 13)), Text(u'\n        ', (4, 29))])"""
 
     def test_tricky_code(self):
         template = """<% print 'hi %>' %>"""
Index: lib/mako/lexer.py
===================================================================
--- lib/mako/lexer.py	(revision 302)
+++ lib/mako/lexer.py	(working copy)
@@ -7,6 +7,7 @@
 """provides the Lexer class for parsing template strings into parse trees."""
 
 import re, codecs
+import codeop
 from mako import parsetree, exceptions
 from mako.pygen import adjust_whitespace
 
@@ -281,6 +282,11 @@
         if match:
             (line, pos) = (self.matched_lineno, self.matched_charpos)
             (text, end) = self.parse_until_text(r'\|', r'}')
+            text = text.lstrip()
+            while end and not codeop.compile_command(text,'<template>', 'eval'):
+                text += end
+                (tail, end) = self.parse_until_text(r'\|', r'}')
+                text += tail
             if end == '|':
                 (escapes, end) = self.parse_until_text(r'}')
             else: