diff --git a/lib/scripts/layout2layout.py b/lib/scripts/layout2layout.py
index 4869769364..08e5058b58 100644
--- a/lib/scripts/layout2layout.py
+++ b/lib/scripts/layout2layout.py
@@ -53,6 +53,16 @@ def write(output, lines):
         output.write(line + os.linesep)
 
 
+# Concatenates old and new in an intelligent way:
+# If old is wrapped in ", they are stripped. The result is wrapped in ".
+def concatenate_label(old, new):
+    # Don't use strip as long as we support python 1.5.2
+    if old[0] == '"':
+        return old[0:-1] + new + '"'
+    else:
+        return '"' + old + new + '"'
+
+
 def convert(lines):
     " Convert to new format."
     re_Comment = re.compile(r'^(\s*)#')
@@ -60,18 +70,53 @@ def convert(lines):
     re_Format = re.compile(r'^(\s*)(Format)(\s+)(\S+)', re.IGNORECASE)
     re_Preamble = re.compile(r'^(\s*)Preamble', re.IGNORECASE)
     re_EndPreamble = re.compile(r'^(\s*)EndPreamble', re.IGNORECASE)
-    re_MaxCounter = re.compile(r'^\s*MaxCounter', re.IGNORECASE)
+    re_MaxCounter = re.compile(r'^(\s*)(MaxCounter)(\s+)(\S+)', re.IGNORECASE)
     re_LabelType = re.compile(r'^(\s*)(LabelType)(\s+)(\S+)', re.IGNORECASE)
+    re_LabelString = re.compile(r'^(\s*)(LabelString)(\s+)(("[^"]+")|(\S+))', re.IGNORECASE)
+    re_LabelStringAppendix = re.compile(r'^(\s*)(LabelStringAppendix)(\s+)(("[^"]+")|(\S+))', re.IGNORECASE)
     re_LatexType = re.compile(r'^(\s*)(LatexType)(\s+)(\S+)', re.IGNORECASE)
     re_Style = re.compile(r'^(\s*)(Style)(\s+)(\S+)', re.IGNORECASE)
     re_End = re.compile(r'^(\s*)(End)(\s*)$', re.IGNORECASE)
 
+    # counters for sectioning styles (hardcoded in 1.3)
+    counters = {"part"          : "\\Roman{part}",
+                "chapter"       : "\\arabic{chapter}",
+                "section"       : "\\arabic{section}",
+                "subsection"    : "@Section@.\\arabic{subsection}",
+                "subsubsection" : "@Subsection@.\\arabic{subsubsection}",
+                "paragraph"     : "@Subsubsection@.\\arabic{paragraph}",
+                "subparagraph"  : "@Paragraph@.\\arabic{subparagraph}"}
+
+    # counters for sectioning styles in appendix (hardcoded in 1.3)
+    appendixcounters = {"chapter"       : "\\Alph{chapter}",
+                        "section"       : "\\Alph{section}",
+                        "subsection"    : "@Section@.\\arabic{subsection}",
+                        "subsubsection" : "@Subsection@.\\arabic{subsubsection}",
+                        "paragraph"     : "@Subsubsection@.\\arabic{paragraph}",
+                        "subparagraph"  : "@Paragraph@.\\arabic{subparagraph}"}
+
+    # Value of TocLevel for sectioning styles
+    toclevels = {"part"          : 0,
+                 "chapter"       : 0,
+                 "section"       : 1,
+                 "subsection"    : 2,
+                 "subsubsection" : 3,
+                 "paragraph"     : 4,
+                 "subparagraph"  : 5}
+
     i = 0
     only_comment = 1
+    counter = ""
     label = ""
+    labelstring = ""
+    labelstringappendix = ""
     space1 = ""
+    labelstring_line = -1
+    labelstringappendix_line = -1
+    labeltype_line = -1
     latextype_line = -1
     style = ""
+    maxcounter = 0
     while i < len(lines):
 
         # Skip comments and empty lines
@@ -100,8 +145,28 @@ def convert(lines):
                 i = i + 1
             continue
 
-        # Delete MaxCounter
-        if re_MaxCounter.match(lines[i]):
+        # Delete MaxCounter and remember the value of it
+        match = re_MaxCounter.match(lines[i])
+        if match:
+            level = match.group(4)
+            if string.lower(level) == "counter_chapter":
+                maxcounter = 0
+            elif string.lower(level) == "counter_section":
+                maxcounter = 1
+            elif string.lower(level) == "counter_subsection":
+                maxcounter = 2
+            elif string.lower(level) == "counter_subsubsection":
+                maxcounter = 3
+            elif string.lower(level) == "counter_paragraph":
+                maxcounter = 4
+            elif string.lower(level) == "counter_subparagraph":
+                maxcounter = 5
+            elif string.lower(level) == "counter_enumi":
+                maxcounter = 6
+            elif string.lower(level) == "counter_enumii":
+                maxcounter = 7
+            elif string.lower(level) == "counter_enumiii":
+                maxcounter = 8
             del lines[i]
             continue
 
@@ -117,30 +182,96 @@ def convert(lines):
         match = re_LabelType.match(lines[i])
         if match:
             label = match.group(4)
+            # Remember indenting space for later reuse in added lines
             space1 = match.group(1)
+            # Remember the line for adding the LabelCounter later.
+            # We can't do it here because it could shift latextype_line etc.
+            labeltype_line = i
             if string.lower(label[:8]) == "counter_":
-                counter = label[8:]
+                counter = string.lower(label[8:])
                 lines[i] = re_LabelType.sub(r'\1\2\3Counter', lines[i])
-                # use the same indentation
-                lines.insert(i + 1, "%sLabelCounter %s" % (space1, counter))
 
-        # Add a line "LatexType Bib_Environment" if LabelType is Bibliography
-        # (or change the existing LatexType)
+        # Remember the LabelString line
+        match = re_LabelString.match(lines[i])
+        if match:
+            labelstring = match.group(4)
+            labelstring_line = i
+
+        # Remember the LabelStringAppendix line
+        match = re_LabelStringAppendix.match(lines[i])
+        if match:
+            labelstringappendix = match.group(4)
+            labelstringappendix_line = i
+
+        # Remember the LatexType line
         match = re_LatexType.match(lines[i])
         if match:
             latextype_line = i
+
+        # Reset variables at the beginning of a style definition
         match = re_Style.match(lines[i])
         if match:
-            style = match.group(4)
+            style = string.lower(match.group(4))
+            counter = ""
             label = ""
             space1 = ""
+            labelstring = ""
+            labelstringappendix = ""
+            labelstring_line = -1
+            labelstringappendix_line = -1
+            labeltype_line = -1
             latextype_line = -1
-        if re_End.match(lines[i]) and string.lower(label) == "bibliography":
-            if (latextype_line < 0):
-                lines.insert(i, "%sLatexType Bib_Environment" % space1)
+
+        if re_End.match(lines[i]):
+
+            # Add a line "LatexType Bib_Environment" if LabelType is Bibliography
+            # (or change the existing LatexType)
+            if string.lower(label) == "bibliography":
+                if (latextype_line < 0):
+                    lines.insert(i, "%sLatexType Bib_Environment" % space1)
+                    i = i + 1
+                else:
+                    lines[latextype_line] = re_LatexType.sub(r'\1\2\3Bib_Environment', lines[latextype_line])
+
+            # Replace
+            #
+            # LabelString "Chapter"
+            #
+            # with
+            #
+            # LabelString "Chapter \arabic{chapter}"
+            #
+            # if this style has a counter. Ditto for LabelStringAppendix.
+            # This emulates the hardcoded article style numbering of 1.3
+            #
+            if counter != "":
+                if counters.has_key(style):
+                    if labelstring_line < 0:
+                        lines.insert(i, '%sLabelString "%s"' % (space1, counters[style]))
+                        i = i + 1
+                    else:
+                        new_labelstring = concatenate_label(labelstring, counters[style])
+                        lines[labelstring_line] = re_LabelString.sub(
+                                r'\1\2\3%s' % new_labelstring.replace("\\", "\\\\"),
+                                lines[labelstring_line])
+                if appendixcounters.has_key(style):
+                    if labelstringappendix_line < 0:
+                        lines.insert(i, '%sLabelStringAppendix "%s"' % (space1, appendixcounters[style]))
+                        i = i + 1
+                    else:
+                        new_labelstring = concatenate_label(labelstring, appendixcounters[style])
+                        lines[labelstringappendix_line] = re_LabelStringAppendix.sub(
+                                r'\1\2\3%s' % new_labelstring.replace("\\", "\\\\"),
+                                lines[labelstringappendix_line])
+
+                # Now we can safely add the LabelCounter line
+                lines.insert(labeltype_line + 1, "%sLabelCounter %s" % (space1, counter))
+                i = i + 1
+
+            # Add the TocLevel setting for sectioning styles
+	    if toclevels.has_key(style) and maxcounter <= toclevels[style]:
+                lines.insert(i, '%sTocLevel %d' % (space1, toclevels[style]))
                 i = i + 1
-            else:
-                lines[latextype_line] = re_LatexType.sub(r'\1\2\3Bib_Environment', lines[latextype_line])
 
         i = i + 1
 
diff --git a/status.14x b/status.14x
index df12f37be7..aed7a5222e 100644
--- a/status.14x
+++ b/status.14x
@@ -54,6 +54,8 @@ What's new
 
 - Set search path for included files correctly on Cygwin (bug 2409).
 
+- Better layout file conversion (bug 2355)
+
 * User Interface:
 
 - Convert line endings for external copy/paste on OS X (bug 1955).