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Layered streaming is an effective solution to address receiver heterogeneity in a peer-to-peer (P2P) network. This paper addresses the problem of rate allocation for layered video stream in p2p mesh networks. We present a distributed rate allocation algorithm that achieves close to optimal layer allocation among peers receiving the same video. We use load balancing technique that evenly distributes layer requests to a parent peer. Weight based layer allocation technique ensures that a child peer with higher children receives higher priority in servicing layer allocation request from its parents. Results show that for up to seven layers streamed by a server, the algorithm maintains a layer delivery ratio of 88% or more among all peers in a network.