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This paper studies the outage performance for a two-way relay channel using amplify-and-forward (AF) strategy in interference-limited scenarios. The exact integral-form expression for the system outage probability is derived under distinct-power interference environments. The lower bound and the approximation for the outage probability are also derived in closed form. The optimal power allocation between terminals is obtained in the case when the transmit power of the relay is large and when the effect of interference is discussed. Numerical results demonstrate that the lower bound works well in situations where the transmit power of the relay is smaller than that of the source terminals, whereas the approximation fits perfectly with the exact results in general situations and particularly when the power of the relay is larger than that of the source terminals in interference-limited systems.