If you don't have a broken Calibre install (library conflicts etc) then this is almost certainly caused by a poorly formated original.
This can happen when ebooks are converted from PDF or other fixed margin formatted originals.
Wished I could give you some link to a one-step tool to fix this, but sadly, there does not seem to be an easy one-size-fits-all solution.
To fix these kinds of problems, I often have to compleatly re-author the ebook.
First I dump the plain text by using Calibre to convert the book into a simple .txt file.
Then I use tools like E-book Tidy, or Interparse4 to clean up and remove the excess hard-line breaks.
Then just load the text into OpenOffice and change to HTML 'Web' format and change the Chapter 1, Chapter 2 headings to style 'Heading 1' and save as a web formatted HTML.
Calibre will then seemlessly convert the HTML into EPUB, automatically generating a nice EPUB Table Of Contents based on the 'Heading 1' tags in the HTML.
I don't think tools like E-Book Tidy are available on the Mac, but I am running it just fine under Wine in Linux, so if you have a similar PC emulator app for the Mac then that should work.
Hope, I am wrong and there is some simple 'just check this option' solution, but if not, then this info should get you started.
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