Sometimes you want an object to be both above (on top of) and below another object. While this seems impossible, there really is an easy solution. For this tutorial, Object A will be the object that you want in the middle while Object B will be the object that you want to be both on top and below Object A. In the screenshot example, Object A is the rectangle while Object B is the string.
Open both Object A & B. Place Object B on top in your layers palette. Now position it where you want it on your canvas. Duplicate Object B and place the copy below Object A in the layers palette. Now you should have in order from top to bottom: Object B, Object A, and copy of Object B. Activate the top layer (Obj. B). Using your eraser tool, you can now erase the portion that you want to be only below Object A. I recommend that you zoom in and erase the edges that cross over the square first as precisely as possible. Next, you can enlarge the eraser brush to erase the larger portion.
That is it. Now you have an object both below and above another object.
Hope you enjoy.