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Aiming at improving compression performance, we consider mode selection for Wyner-Ziv video compression where a block of pixels in a video frame, after discrete cosine transform (DCT), can be either encoded by using H.264 Intra mode or Wyner-Ziv (WZ) mode with side information processed at the decoder. Under the constraint of encoding complexity, an iterative algorithm is proposed to find the best partition of a video frame in to these two modes in the sense of minimizing the overall compression rate. It is shown that the algorithm always converges. Experimental results on standard video test sequences show that by using the proposed algorithm for mode selection, one can achieve about 0.4 dB gain for WZ-encoded frames over a WZ video compression system without intra mode at rate 0.2 bits per pixel. Furthermore, in all the experiments our algorithm converges in 3 iterations.