I think I finally found a solution, but it's ugly and hopefully someone knows a much cleaner way.
Let [itex]L[/itex] be the positive solution to
[tex]L = \frac{1}{4}\left(1 + \frac{2}{L}\right)[/tex]
or equivalently
[tex]4L^2 - L - 2 = 0[/tex]
Thus, [tex]L \approx0.84307[/tex].
If [itex](x_n)[/itex] has a limit, then it must be [itex]L[/itex] because it's easy to see that [itex]x_n[/itex] is never negative.
The hard part is proving that [itex](x_n)[/itex] has a limit. I shall do this by proving that the sequence
[tex]y_n = x_n - L[/tex]
has a limit of 0. To do this, I shall find a constant [itex]C < 1[/itex] such that
[tex]\left|\frac{y_{n+1}}{y_n}\right| < C[/tex]
for all [itex]n[/itex].
First, I need a small lemma, namely:
[tex]|y_n| < 0.2[/tex] for all n
This will be proved inductively. Clearly it's true for [itex]n = 0[/itex], because
[tex]|y_0| = |x_0 - L| \approx |1 - 0.84307| \approx 0.15693[/tex]
Now suppose that [itex]|y_n| < 0.2[/itex]; we must show that this implies [itex]|y_{n+1}| < 0.2[/itex]. Indeed, [itex]|y_n| < 0.2[/itex] implies that [itex]L - 0.2 < x_n < L + 0.2[/itex]. Therefore,
[tex]\frac{2}{L+0.2} < \frac{2}{x_n} < \frac{2}{L-0.2}[/tex]
and this means
[tex]\frac{1}{4}\left(1 + \frac{2}{L+0.2}\right) < \frac{1}{4}\left(1 + \frac{2}{x_n}\right) < \frac{1}{4}\left(1 + \frac{2}{L - 0.2}\right)[/tex]
This is the same as
[tex]0.72935 < x_{n+1} < 1.0275[/tex]
and we also have [itex]L - 0.2 < 0.72935[/itex] and [itex]1.0275 < L + 0.2[/itex], so
[tex]L - 0.2 < x_{n+1} < L + 0.2[/tex]
or equivalently
[tex]|y_{n+1}| < 0.2[/tex], concluding the proof of the lemma.
For the rest of the proof, we substitute [itex]x_n = y_n + L[/itex] into the original recurrence relation, cross-multiply the denominator, and use the fact that [itex]4L^2 - L - 2 = 0[/itex] to simplify the result to
[tex]4y_{n+1}y_n + 4L(y_n + y_{n+1}) = y_n[/tex]
and solving for [itex]y_{n+1}[/itex] we get
[tex]y_{n+1} = \frac{y_n(1 - 4L)}{4(y_n+L)}[/tex]
Then, using the fact that
[tex]\frac{1}{|y_n+L|} = \frac{1}{|x_n|} = \frac{1}{x_n} < \frac{1}{L - 0.2}[/tex]
we have
[tex]|y_{n+1}| = \frac{|y_n| \cdot |1 - 4L|}{4|y_n+L|} < \frac{|y_n| \cdot |1 - 4L|}{4|L - 0.2|} = |y_n| \cdot 0.92225[/tex]
Thus
[tex]\frac{|y_{n+1}|}{|y_n|} < C[/tex]
where [itex]C = 0.92225[/itex], concluding the proof.
It ain't pretty, but it gets the job done, unless I screwed up somewhere.
By the way, there is nothing magic about the number 0.2. At some point I concluded that I needed a number less than 0.25 but big enough to handle the variation of the sequence about its limit, and I chose 0.2 after "cheating" by plotting the sequence in Matlab.