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In this paper, channel allocation scheme is studied for overlay wireless networks to optimize connection-level QoS. The contributions of our work are threefold. First, channel allocation scheme using both horizontal channel borrowing and vertical channel borrowing is presented and analyzed. Channel borrowing is restricted within handoff requests, and only predefined channels can be lent. When all the channels in a given cell are used, handoff requests can borrow channels from adjacent homogeneous cells. In case that the horizontal borrowing requests fail, handoff requests may also borrow channels from heterogeneous cells, if possible. Second, to further improve the system performance, other priority strategies such as channel reservation are introduced. And third, to meet the high QoS requirements of some services and increase the utilization of radio resources, certain services can be transformed between real-time services and non-real-time services as necessary. Simulation results demonstrate that the proposed schemes can improve system performance.