Yes, you can declare parameters using <xsl:param> as a child of the <xsl:stylesheet> element. The way you supply parameter values at run time depends on the API of your chosen XSLT processor.
It's not possible to supply parameters if you invoke the transformation using the <?xml-stylesheet?> processing instruction.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference