I have a drop down of categories that has all the valid categories and
an additional category injected as 'New Category'. When you user selects
the 'New Category' from the drop down, I display another textbox (I did
this with ajax call) for the user to provide new category name. In the
controller if this new_category param is detected than a new category is
created first before creating the post associated with that new
category.
-Navjeet
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