Buy once, cry once. Lots of folks here started with the 2-3 inch lift only to scrap it and go titan. That's the expensive and hard way.
Lots of folks can't leave well enough alone. As mentioned, you do not have to axle swap to get a decent setup. If this is not a off road park toy, you can relax a bit.
All stock 2nd Gen Xterra's can run 33" tires with the "melt mod" which is simply heating and reforming the wheel well liner out of the way a bit.
As stated going up to 35" is going to be a large undertaking. I ran 33"s for quite a while with no lift. My only complaint is they fill the wheel wells a bit much and make the truck look like it sits lower, which is just a visual trick.
There are several mild lift options, the one I went for was the Old Man Emu complete kit, around 2" lift, greatly improves the looks (no more drooping) and completely replaces the spongy and ineffective coil and leaf springs that the Xterra comes with. What I liked was it came with everything to do the lift, no multi-sourcing and piecing parts together for front or rear, it was simple.
What that lift won't do is impress the masses with your monster truck. It's an upgraded suspension replacement, and makes 33" tires look natural on an Xterra. You park next to a stock Xterra it will be very noticeable yours is bigger. Viewed by itself, it looks like it rolled off the lot as an actual 4x4.
Personally for me when I modify I'm keeping long term use and reliability in mind. I stay close to stock as possible while beefing up key areas. I don't wheel hard as some and my Xterra is a travel and camping rig and I do drive it quite a bit in general, so making it an exclusively off road toy is not my primary goal. The more off road capable you make a vehicle, the less on road comfortable it is. So how much you lift you want needs to fit into how you use your Xterra.