Find the following piece of code
<b:include data='post' name='post'/>Now Replace the code you found above with the code below :
<b:if cond='data:blog.homepageUrl !=data:blog.url'><b:if cond='data:blog.pageType != "item"'><a expr:href='data:post.url'><li/><data:post.title/></a><br/><br/><b:else/><b:include data='post' name='post'/></b:if><b:else/><b:include data='post' name='post'/></b:if><!--Labels in menu end-->