The amount of space between words in STAM should ideally be the width of a narrow letter (e.g. vav or yud). A slightly larger space is also acceptable, as long as it is less than the width of three narrow letters – which may be considered a parsha break according to some opinions. If two words are very close together but still look like two separate words (as determined by a child), the STAM item is still kosher, but it should be fixed if possible. The space between any two letters within a word should preferably be just large enough that they are easily recognizable as two distinct letters, but it is kosher as long as the letters are not so far apart that it looks like two words (as determined by a child). Letters that are so close that they actually touch each other are pasul because they are not mukaf gevil.
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STAM 101 introduction & index