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This paper investigates a spectrum-efficient cooperative diversity method based on butterfly network, which endows that a relay can encode the data received from two users and then forward the coded data to destination. Under the assumption that the relay can reliably overhear the data from two users, we discuss the outage probability and diversity gain. Moreover, the outage probability and diversity gain are studied in case the assumption is removed. Results of theoretical analysis and numerical evaluation indicate that the proposed cooperative diversity method can achieve high spectral efficiency without sacrificing the diversity gain.