How about a newer Bluetech Diesel out of a Dodge Sprinter or a Jeep Liberty?
IIRC, the Bluetec diesels were used in the Sprinters and WK Grand Cherokees, but the early KJs got the 2.8CRD which is
not a Mercedes engine - that one's made by VM Motori, and my recollection is that it's still the export-model JK diesel.
The 2.8CRD is about perfect for an XJ - on paper. I looked into doing this a few years back, and while it should package into the engine bay without much difficulty, that's about the easiest part of figuring all of this out. You'll need to run the KJ's ECU, which will also mean running the KJ's transmission, since the transmission controller on that engine is (from my research) integrated with the ECU.
If you could find an application for the 2.8CRD where it was paired with a manual transmission, it
may be possible to put the AW4 behind it, since the AW4 runs its own controller. However, if the manual-gearbox ECU polls transmission state for gear position (unlikely, but possible), etc., you've got essentially the same problem as with an auto. All of this is before you even get into making your XJ's ancilliaries such as the speedo, gauges, electronically-controlled switchgear, etc. work with the new ECU, which would probably be a nightmare.
It's a shame that there's no drop-in for the 2.8CRD, because in an XJ (which weighs about 800lbs. less than a CRD KJ), performance and economy should be
very good.
If you're looking at a Bluetec, the same caveats as above apply.