  Coherent manipulation of quantum states of light is key to photonic quantum
information processing. In this Letter, we show that a passive two-level
nonlinearity suffices to implement non-Gaussian quantum operations on
propagating field modes. In particular, the collective light-matter interaction
can efficiently extract a single photon from a multi-photon input wave packet
to an orthogonal temporal mode. We accurately describe the single-photon
subtraction process by elements of an intuitive quantum-trajectory model. By
employing this process, quantum information protocols gain orders of magnitude
improved efficiency over heralded schemes with linear optics. The reverse
process can be used to add photons one-by-one to a single wave-packet mode and
compose arbitrarily large Fock states with a finite total success probability
$>96.7\%$.
