Development of a compact video encoding system that conforms to the MPEG2 standard is important for real-time visual communication. Motion estimation (ME) to find the best motion vector (MV) representing a spacial displacement for motion compensation (MC) has impact on image quality. Previous ME LSIs for MPEG2 are not suitable for compact, low-cost video encoding systems because they use a multi-chip configuration for wide-search-range MV detection for high-quality video encoding. An ME/MC LSI (ENC-M) based on a 3-step hierachical telescopic search method (HTSM) reduces computation for ME without significant degradation of image quality. The architectural features and chip design methodologies for HTSM are described.