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An improved compact two-dimensional (2-D) finite-difference frequency-domain method is presented to determine the dispersion characteristics of guided wave structures. Eigenvalue equations that contain only two transverse electric field components are derived from Maxwell's differential equations. Compared to the traditional 2-D FDFD containing four or six field components, both the order and number of nonzero elements of the coefficient matrix are reduced simultaneously. The method is verified by two application examples.