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Network services are provided by means of dedicated service gateways, through which traffic flows are directed. Existing work on service gateway placement has been primarily focused on minimizing the length of the routes through these gateways. Only limited attention has been paid to the effect these routes have on overall network performance. We propose a novel approach for the service placement problem, which takes into account traffic engineering considerations. Rather than trying to minimize the length of the traffic flow routes, we take advantage of these routes in order to enhance the overall network performance. We divide the problem into two subproblems: finding the best location for each service gateway, and selecting the best service gateway for each flow. We propose efficient algorithms for both problems and study their performance. Our main contribution is showing that placement and selection of network services can be used as effective tools for traffic engineering.