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As video traffic increases in the Internet and competes for limited bandwidth resources, it is important to design bandwidth-sharing and loss-protection schemes that account for video characteristics, beyond the traditional paradigm of fair-rate allocation among data flows. Ideally, such a scheme should handle both persistent and transient congestion as video streaming applications demand low-latency transmissions and low packet-loss ratios. This paper presents a novel scheme, layered Internet video adaptation (LIVA), in which network nodes feed back virtual congestion levels to video senders to assist both media-aware bandwidth sharing and transient-loss protection. The video senders respond to such feedback by adapting the rates of encoded scalable bitstreams based on their respective video rate-distortion (R-D) characteristics. The same feedback is employed to calculate the amount of forward error correction (FEC) protection for combating transient losses. Simulation studies show that LIVA can minimize the total distortion of all participating video streams and hence maximize their overall quality. At steady state, video streams experience no queueing delays or packet losses. In the face of transient congestion, the network-assisted adaptive FEC promptly protects video packets from losses. Our Linux-based demonstration showcases how LIVA can be implemented in a simple manner in real systems. We also present a solution for LIVA streams to coexist with TCP flows based on explicit congestion notification signaling. Finally, our theoretical analysis guarantees system stability for an arbitrary number of streams with round-trip delays below a prescribed limit.