The Progressive Fine Granularity Scalable (PFGS) coding is a promising technique for streaming video applications. The macroblock-based PFGS coding proposes several INTER modes for the enhancement macroblock coding and provides a simple method to determine a coding mode for each macroblock. Because it does not consider the drifting error possibly occurs in decoder, the mode decision method is not effective. In this paper, we present a mode decision scheme to make a trade-off between the low

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... ting error and high coding efficiency, by adding a middle bit-rate loop in encoder to estimate the possible drifting error in decoder and using a R-D model to estimate the improvement of coding efficiency by selecting high quality reference. Then a nearly optimal coding mode for each enhancement macroblock can be easily determined. The experimental results show that the proposed scheme can effectively reduce the drifting error at low bit rates, while maintaining improved coding efficiency at high bit rates.