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Currently fault propagation characteristics of small-world network have caused widespread concern among scholars, especially in the areas of Electronic System. In this paper we proposed an algorithm based on small world network and improved particle swarm optimization for solving test selection problems. It has been successfully applied to Radar transmitter system. We analyze the characteristics of small-world network and fault propagation, and use the discrete particle swarm optimization to find the shortest path of fault propagation. The proposed method could be used for setting fault test point and failure prevention. It is particularly useful for finding fault propagation and selecting test points in complex electronic system.