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We consider two-way relay channels (TWRCs) with multiple antennas at the relay node. Two stage communications are considered, where both sources transmit during the multiple access (MA) stage, and the relay transmits during the broadcast (BC) stage. An optimized network coding scheme is proposed. For the MA stage, a maximum likelihood algorithm is proposed to decode the XOR of the signals received from the two sources. For the BC stage, an optimized beamforming algorithm is proposed to maximize the product of the effective channel gains for the two sources. Both analytical and simulation results show that the proposed scheme achieves a full diversity gain and outperforms the amplify-and-forward (AF) scheme significantly, owing to its efficient use of the relay transmit power and matched excellent performance of the two stages.