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This paper presents a novel approach for navigating in a panorama-based virtual environment (PBVE). A PBVE was constructed to synthesize the corresponding view when navigating. Users can interact with PBVE through augmented 3D graphic objects. Unlike traditional image-based virtual environment (VE) systems in which the functions of presenting 3D geometry and human-computer interaction (HCI) are very limited, the proposed PBVE system utilized augmented reality technology to enable users to interactively present 3D geometry. Therefore, the HCI ability is significantly increased and the gap between passive planar navigation and interactive human-VE three-dimensional navigation is eliminated.