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In this paper, we present the performance of a (UMTS harr GSM) inter-system handover algorithm which uses two pairs of UMTS and GSM HO thresholds (Ec/Io threshold for UMTS and RSSI threshold for GSM); one pair of thresholds for making a decision to handover from UMTS to GSM and another pair of thresholds for making a decision to handover from GSM to UMTS. We have designed and implemented the algorithm based on a simulation model of a 37-cell UMTS/GSM system consisting of an island of 7 UMTS cells surrounded by 30 GSM cells. The simulation model includes mobility of all users in the system and spatial correlation of the log-normal shadow losses in the 2.1 GHz (for UMTS) and 900 MHz (for GSM) frequency bands. The test mobile is allowed to move along the boundary of the UMTS and GSM cells and evaluated the performance of the algorithm with the handover rate as a function of the various handover thresholds in both the networks. We show that by properly building a hysteresis between the UMTS- to-GSM HO threshold pair and the GSM-to-UMTS HO threshold pair, a good compromise between call drop rate, and intra- and inter-system handover rates can be achieved. Further, we have analysed the effectiveness of the algorithm by applying time hysteresis values and also by measuring the signal parameters in compressed mode.