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In this paper, a new dynamic proxy solution based on overlay multicasting network for layered video streaming is presented. In our proposed approach, all clients in an Internet service provider network interested in receiving a video stream, provided by a media server in the Internet, organize themselves into an overlay tree. The root of the overlay tree acts as a proxy and receives video stream from the original server and distributes it in the local overlay tree. In addition to introducing a new architecture, our main contribution in this paper is proposing a number of distributed protocols for construction and improvement of local overlay tree in video streaming applications. The experimental results confirmed the effectiveness of our proposed protocols.