  We follow numerically the nonlinear evolution of the Parker instability in
the presence of phase transitions from a warm to a cold HI interstellar medium
in two spatial dimensions. The nonlinear evolution of the system favors modes
that allow the magnetic field lines to cross the galactic plane. Cold HI clouds
form with typical masses ~= 10^5 M_sun, mean densities ~= 20 cm^-3, mean
magnetic field strengths ~= 4.3 muG (rms field strengths ~= 6.4 muG),
mass-to-flux ratios ~= 0.1 - 0.3 relative to critical, temperatures ~= 50 K,
(two-dimensional) turbulent velocity dispersions ~= 1.6 km s^-1, and
separations ~= 500 pc, in agreement with observations. The maximum density and
magnetic field strength are ~= 10^3 cm^-3 and ~= 20 muG, respectively.
Approximately 60% of all HI mass is in the warm neutral medium. The cold
neutral medium is arranged into sheet-like structures both perpendicular and
parallel to the galactic plane, but it is also found almost everywhere in the
galactic plane, with the density being highest in valleys of the magnetic field
lines. `Cloudlets' also form whose physical properties are in quantitative
agreement with those observed for such objects by Heiles (1967). The nonlinear
phase of the evolution takes ~< 30 Myr, so that, if the instability is
triggered by a nonlinear perturbation such as a spiral density shock wave,
interstellar clouds can form within a time suggested by observations.
