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The effective method of two-way relaying for TDD (Time Division Duplex) wireless systems is described. In a traditional two-way relaying without network coding four time slots are needed in the TDD mode to exchange data blocks between two stations, e.g. mobile (MS) and base (BS) stations via a relay station (RS). In the proposed solution the number of slots is reduced to two only - the multiple access and broadcasting slots. Substantial savings in the transmission time resources are achieved thanks to the application of the MIMO technique used by the relay station in the multiple access phase and simple network coding in the broadcasting slot. Contrary to well known solutions, in the proposed system network coding is performed on the decoded information blocks received by the RS from both end stations which participate in two-way relaying. Such an approach results in high performance of each constituent link between the end stations and the RS, which leads to the high overall system performance. Simulation experiments are reported showing satisfactory performance of the proposed two-way relaying system.