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In this letter, we propose a differential amplify-and-forward (AF) transmission scheme for a two-user cooperative communications system. By efficiently combining signals from both direct and relay links, the proposed scheme provides superior performance compared to those of direct transmissions with either differential detection or coherent detection. While the exact bit-error-rate (BER) formulation of the proposed scheme is not available currently, we provide, as a performance benchmark, an exact BER formulation and its simple bounds for a case of optimum-combining cooperation system with differential M-ary phase-shift keying (DMPSK) signals. The optimum power allocation is also determined based on the provided BER formulations. We show that the proposed differential cooperative transmission scheme together with the optimum power allocation yields comparable performance to the optimum-combining scheme. Simulation results show that the proposed differential scheme with optimum power allocation yields significant performance improvement over that with an equal power allocation scheme.