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The paper presents a system for video object generation and selective encoding with applications in surveillance, mobile videophones, and the automotive industry. Object tracking and MPEG-4 compression are performed in real-time. The system belongs to a new generation of intelligent vision sensors called smart cameras, which execute autonomous vision tasks and report events and data to a remote base-station. A detection module signals the presence of an object of interest within the camera field of view, while the tracking part follows the target to generate temporal trajectories. The compression is MPEG-4 compliant and implements the simple profile of the standard, which is capable of encoding up to four video objects. At the same time, the compression is selective, maintaining a higher quality for foreground objects and a lower quality for background representation. This property contributes to bandwidth reduction while preserving the essential information of foreground objects. The system performance is demonstrated in experiments that involve objects representing faces and vehicles seen from both static and moving cameras.