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Automated vehicle control system is a key technology for intelligent vehicle highway systems (IVHSs). A model based combined longitudinal and lateral vehicle control algorithm that encompasses a lateral velocity observer is presented in this paper for IVHSs applications. Closed-loop stability issues are analyzed using a Lyapunov-based method. The combined controller-observer scheme can guarantee uniform ultimate bounds (UUB) of controller errors and observer estimation error. Analysis, design, and simulation testing presented are based on 3 DOF complex dynamic model of a FWS/FWD passenger wagon.