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We propose a block-based conditional motion estimation scheme for video compression. The blocks in a frame are classified as active or inactive based on a threshold and only the active blocks are subjected to motion estimation. The threshold value is decided automatically through an iterative algorithm. The motion vectors of the boundary active blocks are estimated using a subblock matching-based scheme. Unlike existing variable size block-matching algorithms, the proposed motion estimation scheme preserves the basic framework of the conventional block-matching algorithm, such as equal number of motion vectors and one-pass processing. A small amount of side information needs to be transmitted for the boundary blocks to indicate the displacements of the their subblocks. The proposed scheme provides a better tradeoff between the complexity and the rate-distortion performance of the encoder than other existing schemes and better subjective quality of the motion-compensated frames than the conventional motion compensation.