XmlSerializer
is probably what you want. Use it to build the "outer" XML document; you can give its text(...)
method an intact XML string and it will do the escaping for you. You can do the same kind of thing with the DOM API by using setTextContent if you really want to build a DOM tree and then dump that to XML. As you appear to be aware, any XML parser will properly decode the entity references when you ask for the text back.
If you really want to write your own XML-building code, you might try pulling in the Apache commons-lang library into your project for it's StringEscapeUtils class. I'm not aware of anything that will just do the entity substitution without building real XML in the base Android API.
For an example, try this:
XmlSerializer xs = Xml.newSerializer();
StringWriter sw = new StringWriter();
xs.setOutput(sw);
xs.startDocument(null, null);
xs.startTag(null, "foo");
xs.text("<bar>this is some complete XML document you had around before</bar>");
xs.endTag(null, "foo");
xs.endDocument();
Log.v("XMLTest", "Generated XML = " + sw.toString());