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Cluster analysis of gene expression data from a cDNA microarray is useful for identifying biologically relevant groups of genes. However, finding the natural clusters in the data and estimating the correct number of clusters are still two largely unsolved problems. In this paper, we propose a new clustering framework that is able to address both these problems. By using the one-prototype-take-one-cluster (OPTOC) competitive learning paradigm, the proposed algorithm can find natural clusters in the input data, and the clustering solution is not sensitive to initialization. In order to estimate the number of distinct clusters in the data, we propose a cluster splitting and merging strategy. We have applied the new algorithm to simulated gene expression data for which the correct distribution of genes over clusters is known a priori. The results show that the proposed algorithm can find natural clusters and give the correct number of clusters. The algorithm has also been tested on real gene expression changes during yeast cell cycle, for which the fundamental patterns of gene expression and assignment of genes to clusters are well understood from numerous previous studies. Comparative studies with several clustering algorithms illustrate the effectiveness of our method.