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We present a method for joint decode-and-forward physical layer network coding in two-way relay networks. The two source nodes send their packets simultaneously over time-varying channels to a relay node, then the relay broadcasts the received superimposed packets to the source nodes using network coding. The nodes use trellis coding for the sake of error correction and multi-antenna equipments to combat multipath fading. A challenging multiple access problem occurs at the relay node, which performs joint channel estimation and decoding for the individual source packets. We design message passing algorithms based on factor-graphs to solve this problem. The relay has two separate modules that perform channel estimation and decoding for the packets received from each source node. The interference generated by the other source node is taken into account by exchanging messages between the two modules.