Magento: What is UPDATE XML tag

Handles are the moduler form of layout xml, Suppose if we have handle1 and handle2.

example:

<layout>
   < Handle1 >
      <!-- Handle1 layout content #1 -->
      <update handle="handle2" />
   </Handle1 >
   < Handle2 >
      <!-- Handle2 layout content #2 -->
   </Handle2 >
</layout>

That means you have:

<layout>
   <Handle1>
      <!-- Handle1 layout content #1 -->
      <!-- Handle2 layout content #2 -->
   </Handle1>
</layout>




Merge Handle2 contents with the Handle1 layout xml..