DHC-8 FLC DSND IN RESPONSE TO TCASII RA DURING ARR SID DUE TO A B737 CLBING THROUGH THEIR ALT.

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AT CRUISE AT 12000 FT; ON THE MAJIC 9 ARR INTO CLT; WE WERE ADVISED OF A B737 CLBING TO 10000 FT BY GSO APCH. THE B737 WAS TO OUR R (N) AND HDG S. WE ADVISED GSO APCH THAT WE DID NOT HAVE THE TFC IN SIGHT; AS THERE WAS AN UNDERCAST BELOW US. WE ENTERED IMC; AND SHORTLY AFTER THIS WE RECEIVED A TA/RA FROM OUR TCASII. LOOKING DOWN AT THE TARGET; IT WAS 200 FT BELOW US; JUST OFF OUR R REAR AND CLBING. BY THE TIME THE TARGET TFC WAS AT OUR ALT; IT WAS AT ITS CLOSEST TO OUR ACFT AND STILL CLBING. THE RA TOLD US TO 'DSND;' SO THE CAPT INITIATED A DSCNT AND TOLD ME TO ADVISE GSO. I DID SO; AND GSO TOLD US THAT THE CONFLICT ACFT WAS GIVEN THE CLB AND HAD US IN SIGHT. NEITHER THE CAPT NOR I EVER HEARD THE B737'S CLB CLRNC. NOR DID WE HEAR THE B737 RPT US IN SIGHT. NEITHER OF US UNDERSTOOD HOW THE B737 CREW COULD HAVE US IN SIGHT WHEN WE CLRLY WERE IN IMC. WE BOTH ESTIMATE THAT THE B737 PASSED ABOUT 1 MI BEHIND US. THIS IS TOO CLOSE WITHOUT FURTHER ADVISEMENT FROM ATC. THE TA/RA CAUGHT US BOTH BY SURPRISE AND WE ACTED ACCORDINGLY TO PROTOCOL AND SAFETY.